White House paper: Corporate tax cut would boost wages

White House paper: Corporate tax cut would boost wages
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The White House on Monday is rolling out a paper arguing that the GOP’s plan to slash the corporate tax rate from 35 percent to 20 percent would “very conservatively” increase average household income by $4,000 per year.

“By inducing higher capital investment, reductions in corporate tax rates increase the demand for workers and heighten their productivity,” the White House Council of Economic Advisers (CEA) said in the paper.

The paper had been expected after President Trump, citing the CEA, touted the $4,000 figure in a speech on taxes last week in Pennsylvania.

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“About a $4,000 amount of money additional for the American family to spend,” Trump said. “That's very exciting.”

CEA Chairman Kevin Hassett said on a call with reporters on Sunday that the main reason why cutting the corporate tax rate would boost wages is because doing so would make it less expensive for companies to invest in capital assets such as machines.

“More assets like machines let workers produce more, and when workers can produce more, businesses can afford to pay their workers more,” he said.

The cut to the corporate rate is a key part of Republicans’ plans to overhaul the tax code. Trump and GOP lawmakers have argued that lowering the rate would make U.S. businesses more competitive with those from other countries.

The CEA in its report argued that a number of studies have shown that lowering corporate taxes has “substantial effects on wages.”

The council estimated based on “conservative” estimates from academic literature that the corporate tax cuts in the GOP’s framework would raise average household wage and salary income annually by $4,000. More optimistic estimates suggest that average household income would increase by more than $9,000 per year, CEA said.

Average income would increase from $83,143 to between $87,520 and $92,222, while median household income would increase from $59,039 in 2016 to between $62,147 and $65,486, the CEA estimated, using 2016 dollars.

“Put simply, capital deepening, which brings additional returns to the owners of capital, brings substantial returns to workers as well,” the CEA wrote.