Who’s Right, Trump or Desai? There’s a Discrepancy of $8200

By JIM TANKERSLEY Oct 17, 2017 for The New York Times

. . . Mr. Trump’s Council of Economic Advisers said in a report released on Monday that reducing corporate taxes could raise average household incomes by as much as $9,000 a year. The top end of that estimate was based on work by a trio of researchers, and on Tuesday one of them, Mihir Desai of Harvard, said Mr. Trump’s team had misread the research. The actual income gain implied by his study, he estimated, would be $800.

Mr. Trump’s economic team disagreed — saying Mr. Desai had erred in interpreting his own paper. [Imagine!]

Mihir Desai at Harvard

The Republican proposal, which still lacks key details, thus far includes what analysts project will be only modest reductions in income taxes for many middle-class Americans. But it reduces the top corporate income tax rate to 20 percent from 35 percent, a move that Mr. Trump and Republican leaders say will spark faster economic growth and higher profits. Their theory is that companies will pass those winnings on to workers by raising their pay.

That claim has already run into opposition from many economists, particularly liberal-leaning ones. It could prove a difficult sell politically, at a time when corporate profits are near record highs and polling suggests Americans are skeptical that the Republican plan will help average workers.

They are facing a lot of headwinds” in selling the plan, because Americans will not see it as a boon to the middle class, said Andrew Bates, a spokesman for the liberal opposition research group American Bridge, which is gearing up to oppose the Republican plan. “This plan is vulnerable, based on that landscape.”

As they prepare to release a full tax plan in the coming weeks, though, Republicans are pressing the argument.

“Fixing the business side of our tax code is really all about helping families and workers,” House Speaker Paul D. Ryan, Republican of Wisconsin, said last week. “Cutting the corporate tax rate means more jobs here in the United States. It will foster increased competition, which will directly drive up wages for our workers. Higher wages means bigger paychecks.” [What delusion—cutting the tax rate will do no such thing. Who is Speaker Ryan kidding—himself or the American worker?]

The parliamentary language in the resolution would allow Republicans to pass tax cuts that cost as much as $1.5 trillion over the next decade with only 50 votes in the Senate, not the 60 needed to overcome a filibuster. Republican leaders have said that without a budget, there will be no tax cut.

Trump-at-Heritage-MANDEL-NGANAFPGetty-Images-640x480

President Trump at the Heritage Foundation

In a speech at the Heritage Foundation in Washington on Tuesday evening, Mr. Trump called on Congress to quickly pass “incredible tax cuts” that he said will allow individuals, big corporations and small businesses to keep more of the money they earn.

 

“Our tax plan will ensure that companies stay in America, grow in America and hire in America,” Mr. Trump told employees and supporters of the conservative organization. “We will lift our people from welfare to work, from dependence to independence, and from poverty to total, beautiful prosperity.”

The president urged the Heritage Foundation audience to help the administration put pressure on Republican lawmakers to support the tax cuts, saying that “you will see things happen like have never happened before. We will have employment. We will have jobs. We will have companies moving back into our country.” [All of these are pure presidential pipe dreams!]

He added: “Let’s give our country the best Christmas present of all: massive tax relief.”

Many economists, including ones who served Democratic presidents, agree that lowering corporate taxes could lead to higher incomes for workers. A few, such as Lawrence B. Lindsey, the former director of President George W. Bush’s National Economic Council, have estimated the Republican plan for corporate cuts could lead to income gains of the magnitude that Mr. Trump’s economists are projecting.

But other economists have criticized the Trump team’s estimates as well above what research supports. That includes Mr. Desai, a professor at Harvard Business School and Harvard Law School, who co-authored a study on corporate taxation that Mr. Trump’s Council of Economic Advisers drew upon for its estimate. The report said that a corporate tax cut would increase average household income by $4,000 per year on the low end to as much as $9,000 at the high end.

Mr. Desai, who wrote the study with Harvard’s C. Fritz Foley and James Hines Jr. of the University of Michigan, said his own estimates of the effect of such a rate cut was closer to $800 a year. “I’m a believer in corporate tax reform, and I’m a believer in corporate tax cuts, and I believe they would go to workers,” he said. “But I don’t believe those numbers add up.”

The chief of staff for the council, D.J. Nordquist, said in an email that the $800 estimate was “far” from the academic consensus on the effects of corporate tax reductions on workers. “It’s gratifying to see Professor Desai agrees with us that there is a need for corporate tax reform and that rate reduction is the best way to help the middle class,” she wrote. “But the CEA did not misinterpret the Desai, Foley, and Hines paper.”

Other economists have attacked the council’s estimates in harsher terms than Mr. Desai. Robert J. Shapiro, the chairman of the consulting firm Sonecon and a former economic adviser to President Bill Clinton, said on Tuesday that there was no evidence in United States history of lower federal corporate tax rates driving surges in investment or wages. The council’s mistake, he said, was “in believing that the corporate tax rate determines the investment rate. That’s just not true.”

Polling suggests middle-class Americans are not clamoring for corporate rate cuts, and that they do not expect the Republican plan to reduce their own taxes. Recent polls by ABC News and the Pew Research Center show a majority of Americans would prefer to raise, not cut, corporate taxes. . . . 

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