Top White House officials are making the case that substantial tax cuts are the key to driving up salaries in an economy with low unemployment and steady job growth.
Speaking December 8 on Fox Business, National Economic Council Director Gary Cohn praised the latest jobs report from the Bureau of Labor Statistics but noted that it had one undesirable statistic: lackluster wage growth. Tax reform, Cohn said, “is going to be the tool to drive wage growth in the country.”
In a separate interview that same day on CNBC, Cohn predicted that taxpayers will see their take-home pay increase early next year, once tax reform is signed into law and the tax withholding tables are updated accordingly. When that happens, there will be greater competition for labor as the economy grows, further driving up wages, he said.
“We think we are in a prolonged period of wage growth starting the beginning of next year, which is something we haven’t seen for the last eight or 10 years,” Cohn said.
Along with wage growth, Cohn predicted that the tax reform bill would jump-start the whole U.S. economy. “[W]e’re going to easily see 4 percent [GDP] growth next year,” he said.
During the interview, Cohn also discussed negotiations for the upcoming conference committee to reconcile differences in the House and Senate tax reform bills, predicting that there will be “an enormous amount of progress over the weekend” before the first meeting of conferees on December 13. He added that President Trump has “very few bright lines” on what the final bill will contain, and that he has been “flexible on everything else.”
Cohn also touched on the possibility of conferees setting the corporate tax rate at 22 percent, arguing that a 20 percent rate would “make us really competitive with the rest of the world,” he said.
Cohn also said that the White House is “open to other solutions” when it comes to the state and local tax deduction, which both the House and Senate bills limit to $10,000 in property taxes. The provisions are getting pushback from Republican legislators in high-tax states, who “have to have a solution that allows their residents to come away from this in a position that allows these members to support this,” Cohn said. He added that Trump is not opposed to repealing the deduction in exchange for a lower top marginal individual income tax rate.
At a December 7 event in Washington hosted by the American Council for Capital Formation, Council of Economic Advisers Chair Kevin Hassett weighed in on the economic growth potential under the tax bill. He argued that passing a tax cut at this late stage of an economic recovery is, historically, the ideal time, because that’s when wage inequality starts to decrease and workforce participation increases.
A major reduction in taxes on capital formation, particularly through the corporate rate reduction, “is a recipe for really healthy wage growth,” Hassett added.
Hassett also referenced recent surveys of CEOs that suggest that, rather than investing capital or hiring additional workers, they plan to use additional profits from tax cuts for less economically stimulating stock buybacks, saying that those types of responses are “kind of a puzzle to economists.”
He said that while corporate executives do sometimes say that they won’t invest in new capital, the data suggests a discrepancy between what they say and what they do. “They have to logically respond if they’re pursuing their fiduciary duty to their shareholders,” or else risk being put out of business by competitors that do invest and hire more, Hassett said.
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