WASHINGTON – The new chairman of the White House Council of Economic Advisers on Thursday defended the growth-enhancing power of the Trump administration's tax-overhaul plan, while chiding a think tank for releasing an analysis of the proposal before it is complete.
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Kevin Hassett, in his first public speech since his confirmation last month, said the Republican tax plan will boost the economy by encouraging more people to work -- or to work more -- and creating incentives for companies to return to the U.S. What businesses save from lower tax rates they will use to increase corporate investment and raise wages, he argued.
Mr. Hassett, citing estimates from recent economic research on tax-policy changes, said tax cuts envisioned under the proposal could lift gross domestic product per capita by approximately 4% over the first year. And the corporate tax changes, in particular, imply a "short-term but sustained" boost to capital spending and GDP growth of "much more than 1%."
"Although there are a number of reasons to expect that the actual impact of the reform would be much smaller than that, including the fact that we are currently near full employment, the potential for a significant growth effect is still very reasonable and empirically valid," he told an audience at the Urban Institute, a left-leaning Washington think tank.
Trump administration officials have said the plan could boost average annual GDP growth to 2.9% over the next decade -- from the roughly 1.9% that many economists expect -- which they said would offset the costs from lower tax revenues.
Analysts and economists on both sides of the aisle, however, have disagreed over how much growth tax cuts are likely to generate. Key pieces of the plan remain unwritten, including important details about changes to the earned-income tax credit, a possible additional top tax rate above 35%, rules to prevent business owners from improperly reclassifying wages as business income and which households pay more and which pay less.
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A preliminary analysis from Urban's Tax Policy Center said the proposal would reduce federal revenue by $2.4 trillion over 10 years and $3.2 trillion over the second decade, and assumes it wouldn't affect the overall level of economic activity.
Mr. Hassett called the TPC analysis "inaccurate" and "fiction," at Thursday's event, which TPC co-hosted with the right-leaning Tax Foundation. He said it ignores details about the unwritten bill that are publicly known, including that the Senate budget would only allow for a $1.5 trillion tax cut over the next 10 years.
"It is simply inconsistent, with mountains of evidence that I am about to discuss, to have no growth effects from tax changes this significant, " he said. He also praised the Tax Foundation for "correctly" deciding to wait for a complete plan before releasing an analysis.
Asked why the administration is touting the growth effects of the plan before it is complete, Mr. Hassett said his analysis "was true to the things that we know, and did not make assumptions about things we don't know."
Mark Mazur, a former Obama administration Treasury official who runs the Tax Policy Center, said at the event that there was strong public demand for an analysis of the plan, which had been in the works for months and yet only amounted to nine pages. The group "filled in the blanks," he said, in part by using previous public statements from the Trump administration.
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(END) Dow Jones Newswires
October 05, 2017 14:05 ET (18:05 GMT)