Monday, October 23, 2017

Fake News on the GOP Tax Plan

Apparently the Trump administration and its boosters are claiming the GOP tax plan in the works will raise worker's pay by anywhere from $4,000 to $9,000 a year, an absolutely preposterous lie that's so bold that it might just work.

The Wall Street Journal has a great takedown of this embryonic tax plan.  You know your big GOP tax plan is a bunch of hot garbage if the WSJ, of all publications, rips it to shreds.

You might not be able to access the WSJ article due to a paywall, so I'm going to pull the key quotes for you here.  All quotes below are from the WSJ article, and emphases added are mine throughout.  Let's begin!

The White House Council of Economic Advisers claimed in a report released last week that the cuts to the corporate tax rate contained in the Republican tax-reform proposal would raise average annual household incomes by more than $4,000. They called this a “very conservative” estimate.
On the individual side, the Republican plan offers almost no direct benefit to the middle class. Many details are still missing, but from what we know so far it would largely be a wash for most households. A larger standard deduction and child tax credit would roughly offset the elimination of personal exemptions and the increase in the lowest bracket from 10% to 12%. 

This is the WSJ's take, not mine.  Onwards:

The bigger debate is about who benefits from a reduction in the corporate rate from 35% to 20%, which would reduce federal annual revenue by about $200 billion. An important economic lesson about taxes is that the one who writes the check is not necessarily the one who bears the cost. The Treasury Department and the Joint Committee on Taxation operate under the assumption, informed by decades of research, that about 25% of the corporate tax bill is ultimately paid for by workers in the form of lower wages. Recent peer-reviewed research has found labor’s share of the corporate tax burden ranging from lower than 25% to as high as 50%.

OK.  So here's the WSJ, owned by Rupert Murdoch and not exactly a liberal publication, stating decisively that a corporate tax rate cut of 15% will result in lower wages for workers, and probably little to no direct tax benefit.


The White House claims that the average household would see between $4,000 and $9,000 more in its paychecks every year. But if all 125 million households got a raise like that, it would amount to an annual increase in total wages of between $550 billion and $1.1 trillion. That’s between 275% and 550% of the total cost of the $200 billion corporate tax cut—implying a supply-side effect that’s more than a little far-fetched. ... Although the White House makes much of the importance of peer-reviewed research, their estimates of the wage effects from a cut to the corporate tax rate are based on parameters from a few papers written a decade ago, none of which were peer-reviewed, and most of which were never published.

GOP "math" has long been a joke, and it seems the Trump administration marches forth in the same sad tradition.

Let's wrap up here for now:

Moreover, the parameters used by CEA are based on estimates for U.S. states or much 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. Many companies need to be in the U.S. for reasons quite apart from taxes. The United Kingdom, an advanced and relatively large economy, is a more relevant example. Its experience of a 0.3% annual real wage decline since 2007, following its cutting its corporate rate from 30% to 19%, does not inspire much confidence in claims about large wage effects.

OK! So there you have it.  You're sure to be hearing a lot from Republicans and their allies about how much better off we'll be as a result of the corporate rate cut.  Don't believe it.  If even the Wall Street Journal thinks it's a bad idea for the average American: it's a bad deal for the average American.

Likely the Trump administration will claim the WSJ is "fake news," but you have to wonder how long he get away with that particular canard, given that the WSJ is owned by the fellow who owns Fox News.  We'll find out!

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