Press Release - Council of Economic Advisers Chairman Kevin Hassett: "The Wages of Tax Reform Are Going to America's Workers"

"As of April 8, nearly 500 American employers have announced bonuses or pay increases, affecting more than 5.5 million American workers, as a result of the [Tax Cuts and Jobs Act]."

The wages of tax reform are going to America's workers

By Kevin Hassett

The Wall Street Journal

April 17, 2018

The Tax Cuts and Jobs Act reduces the federal corporate tax rate from 35% to 21% and allows full expensing for business investment in equipment. Opponents, echoing leftists from Marx to Piketty, describe those provisions as giveaways to the wealthy at the expense of the working class. They're wrong.

In a dynamic, competitive economy, the relationship between companies and their employees is symbiotic, not antagonistic. Research by economists Alan Krueger and Lawrence Summers, both of whom served in the Obama administration, shows that more-profitable employers pay higher wages. Any company that attempts to pay a worker less than he is worth will quickly lose that worker to a competitor. Thus, firms that want to thrive must invest in their plants and workers.

When profits go up, capital investment goes up, and wages follow. That's the reason we estimated, based on what has happened around the world, that households will get an average $4,000 wage increase from corporate tax reform, once its changes are fully implemented and swoosh through the nation's economic engine.

Naysayers have been invested in the law's failure from day one. But the data are already proving them wrong. An increase in the return to investment should drive investment and profits up, increase productivity and wages, and ultimately boost economic growth. Here's what we've seen so far this year:

• More investment. The president's promise to lower corporate taxes and reduce red tape has led to a surge in American business investment.

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• Greater productivity. Capital investment raises capital per worker and thus labor productivity. Here again, the early signs are positive.

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• Pay raises. The average increase in wages from the year-earlier period for January through March 2018 is the highest for any three-month period since mid-2009. A flurry of corporate announcements provide further evidence of tax reform's positive impact on wages.

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• Faster growth. Forecasters around the world are now predicting this growth can be sustained. The Organization for Economic Cooperation and Development has boosted its forecasts for real U.S. economic growth in 2018 and 2019 to nearly 3% to reflect the impact of the TCJA.

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Read the full op-ed here.