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Hassett Links Post-TCJA Shareholder Windfall to Repatriation

Posted on February 23, 2018 by Jonathan Curry

The White House’s top economist is unfazed by the results of a Wall Street survey indicating the bulk of the tax cuts’ benefits were being directed to stock buybacks and dividends.

A new Morgan Stanley survey of stock market analysts found that companies are expected to use the biggest share of their corporate tax savings to reward shareholders and spend a substantially smaller share on workers and capital investments. Council of Economic Advisers Chair Kevin Hassett, asked to respond at a February 22 White House briefing, attributed those results to a one-time adjustment caused by the deemed repatriation provision in the Tax Cuts and Jobs Act (P.L. 115-97).

“The thing that you have to remember is we’re starting out with trillions of dollars that were parked overseas,” Hassett said. “A lot of firms are taking that money and they’re paying bonuses, but they’re also doing things like increasing dividends and doing share buybacks, which sometimes happens when firms find money,” he said.

That type of behavior reflects corporations’ approach to past earnings, “but going forward, we’re going to see a lot of capital formation and wage growth,” Hassett continued, adding that it might take three to five years to see the full positive effect on labor compensation and capital investment.

Although President Trump has said that deemed repatriation would lead to a $4,000 increase in average household income, Hassett’s latest assessment more closely resembles the findings of an October 2017 CEA report, which said that the then-proposed 20 percent corporate income tax rate would boost annual average household income by $4,000 in four years.

According to the Morgan Stanley survey, analysts expect businesses to use 43 percent of their corporate tax savings on stock buybacks and dividends, 17 percent on capital spending, and 13 percent on workers.

Electric Slide

After weeks of mixed signals from the White House on where it stands on using a gas tax increase to pay for Trump’s $1.5 trillion infrastructure initiative, Hassett offered little new insight.

However, he did raise concerns that the gas tax base could shrink as more drivers shift to electric cars. “If we’re all driving around in Teslas, then how is the gas tax going to pay to fix potholes?” Hassett asked.

The White House is trying to think creatively about infrastructure financing mechanisms and ensure that “all the possible tools are on the table,” Hassett added.

The CEA’s February 21 annual report on the economy and the administration’s policies said that fuel taxes have “historically acted as imperfect user fees,” and are becoming less effective in light of greater electric vehicle use and better fuel efficiency. The report instead suggested that dynamic highway tolls or a vehicle-miles-traveled tax could be a viable source of new revenue.

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