EX-OBAMA ECONOMIST: The Trump team's claim that tax cuts would boost wages is 'more than a little far-fetched'

  • The Trump White House’s claim that workers would see large gains from tax cuts rests on dubious assumptions, according to Obama’s ex-chief economist
  • Jason Furman writes in an opinion piece that the Trump team’s analysis assumes broad benefits from the tax cuts that are ‘more than far fetched’
  • Furman says overall plan ‘offers almost no direct benefit to the middle class’

The Trump administration is pitching its tax cut plan as a boon to the middle class even though a wide range of independent analyses shows the proposals outlined so far would overwhelmingly benefit the wealthiest Americans.

In the latest pitch, Kevin Hassett, head of the president’s White House Council of Economic Advisers, argued the following about the corporate tax portion of the Trump plan, which envisions a cut in the rate from 35% to 20%: “Conservative estimates from the literature imply an increase in average household income of $US4,000 and more moderate estimates show increases of $US9,000.

That was too bold a claim for Hassett’s predecessor at the helm of the Council of Economic Advisors, Jason Furman, to let it slide. In a Wall Street Journal op-ed, Furman makes a convincing case for why Hassett’s claims rest on some rather dubious assumptions.

“If all 125 million households got a raise like that, it would amount to an annual increase in total wages of between $US550 billion and $US1.1 trillion,” writes Furman, now a senior fellow at the Peterson Institute for International Economics (where I used to work).

This amounts to between 275% and 550% of the $US200 billion corporate tax cut’s total cost, says Furman, implying growth benefits to workers that are “more than a little far-fetched.”

According to Furman’s own calculations, he writes, the White House methodology “yields the absurd conclusion that eliminating the corporate tax altogether would boost annual household wages by up to $US20,000.” 

Furman also notes that one of the authors of a paper cited by Trump’s advisors to justify the claim of a possible $US9,000 increase in wages took to Twitter to say that the CEA’s maths “misrepresented” his findings.

Another problem Furman identifies: Many of the measurements used by Trump’s economists are based on estimates for US states as well as smaller and lower-income countries.

“North Carolina and Estonia might get much more inbound investment with a lower rate, but the trick would not work nearly as well for an economy as big as America’s,” Furman writes.

As for the overall bend of the tax plan, Furman confirms what so many other analyses have found: the rich win.

On the individual side, the Republican plan offers almost no direct benefit to the middle class,” Furman says. 

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