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Trump Reportedly Eyeing AEI Economist to Chair CEA

Posted on February 27, 2017 by Jonathan Curry

President Trump is reportedly close to announcing Kevin Hassett, a conservative economist at the American Enterprise Institute (AEI), to be his nominee to lead the vacant Council of Economic Advisers (CEA), according to reports.

Multiple media outlets -- including Politico and CNBC -- are reporting that Trump is either about to pick or already has picked Hassett for the post. Hassett declined to comment on this story, referring Tax Analysts to the White House, which did not respond to a request for comment February 24.

Hassett is a longtime advocate of corporate tax rate cuts to spur economic growth, as well as a firm supporter of using dynamic scoring models to estimate their revenue effects -- views that match well with the Trump administration's.

Another position that Hassett, AEI's director of research for domestic policy, would likely share with Trump and his leading advisers is that he is less concerned about the distributional effects of tax policy changes than the overall growth effects -- a major reason for why he says dynamic scoring must be accounted for in revenue estimates of tax legislation. Distributional estimates by independent tax scorekeepers like the Tax Foundation and the Urban-Brookings Tax Policy Center suggest that the benefit to after-tax incomes in Trump's tax proposals would skew largely to upper-income earners.

"Policymakers, of course, should consider issues of distribution when considering policy alternatives," he wrote in July 2015 testimony before the Joint Economic Committee. "But to look at distribution only, without regard to economic efficiency, is to deny the basic tradeoff between the two, and frankly, to deny the value of economic analysis whatsoever," he said.

Advising Republican leaders on economic policy would be familiar territory for Hassett, who has served as an economic adviser to the presidential campaigns of George W. Bush in 2004, John McCain in 2008, and Mitt Romney in 2012.

House Republicans could find a friend in Hassett to their border-adjustable tax proposal. As a guest on The Larry Kudlow Show in July 2016, Hassett called the border adjustment plan "really pro-growth" and said it "responds to what I'm hearing from people in both parties," citing concerns about trade and the global economy that presidential candidates like Trump and Sen. Bernie Sanders, I-Vt., campaigned on.

At the time, Hassett called the border-adjustable tax a "really technical issue that sounds like it's not worth paying attention to," but he added that it's important to understand how border adjustments work. Other countries like Germany use border adjustment taxes, which give U.S. manufacturers "a big tax disadvantage," he said. If the United States enacted a system of border adjustments, it would "level the playing field for U.S. manufacturers," he said.

In July 2013 testimony before the Joint Economic Committee, Hassett said that a progressive consumption tax would be "the best solution for tax reform that encourages investment and growth." He argued that the "largest obstacle to growth in the U.S. today is the corporate income tax," and that while "sweeping fundamental reform" that moves toward a consumption-based tax system would be ideal, "a well-designed corporate reform could increase expected growth without threatening America's coffers."

One potential area of friction with the administration could arise from its inclination toward targeted policies. While Trump has negotiated with specific companies and spoken about punishing U.S. auto manufacturers that produce vehicles overseas -- including through the use of a 35 percent punitive "border tax" or tariff -- Hassett has criticized such approaches. In a 2012 Viewpoint in Tax Notes coauthored with AEI colleague Alan D. Viard, he called targeted tax increases, especially those based on "political unpopularity," a threat to both the economy and the rule of law.

If nominated to chair the CEA, Hassett would be subject to confirmation by the Senate. That confirmation would bring leadership to the three-member council that appeared to have fallen out of favor under the Trump administration. Trump recently bumped the CEA chair from having a seat in his 24-member Cabinet. 

Appointing a chair to the council would enable the office to re-staff many of the research positions that have gone vacant in recent months, and it would bolster the role of the council in serving as an in-house policy research and analysis team for the White House.

Reports of Hassett's nomination invited generally favorable responses from the economics community. Jared Bernstein of the liberal-leaning Center on Budget and Policy Priorities tweeted that Hassett was a "great choice!" and added, "He's a conservative economist who cares a lot about people (tho way too into corp tax cuts)." Former CEA chair Jason Furman likewise tweeted that Hassett would be "an excellent pick -- he is committed to research and dialogue plus understands policy/politics." And Donald Marron, a former CEA member and now with the Urban-Brookings Tax Policy Center, told Tax Analysts that Trump "needs a capable CEA chair" and that Hassett "would be a wonderful choice."