White House Study Sees Faster Economic Growth From Tax Cuts

By Jeffrey Sparshott Features Dow Jones Newswires

Cutting the U.S. corporate tax rate to 20% and allowing companies to immediately write-off the cost of their capital spending would boost business investment, spur faster economic growth and improve household income, White House economists said in a report released Friday.

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The White House's second study looking at potential economic benefits of corporate tax cuts follows by a day the House's passage of a budget plan setting up a rewrite of the tax code. While broad outlines of a plan are clear, many details are unresolved. The House Ways and Means Committee is expected to release a bill Nov. 1.

The Council of Economic Advisers report is meant to bolster the case for corporate tax cuts and highlights some specific policies.

Already, Republicans agree on reducing the corporate tax rate to 20% from 35%. White House economists also suggest broad economic benefits from making permanent an adjustment to the tax code that would allow companies an immediate write-off of investment in equipment and intellectual property. The current Republican tax framework makes such immediate write-offs temporary, a feature that helps keep the federal deficit from expanding by more than the GOP's $1.5 trillion target over a decade but reducing the potential incentive effects in favor of timing shifts.

Existing tax rules generally require companies to write off investments over several years.

The White House report said including those features in a tax overhaul would generate an increase in gross domestic product -- a broad measure of economic output -- between 3% and 5% over the next decade. The report echoed earlier findings showing that the average household would reap at least $4,000 of that in wage and salary income.

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Trump administration figures have been met with skepticism.

Some academic research has found only a tenuous connection between economic growth rates and taxes. Democrats, meanwhile, say companies are more likely to pass tax cuts along to shareholders than workers.

"No matter how badly the White House might want it to be true, years of research has debunked the claim that giving massive tax cuts to corporations will somehow result more money for the middle class," said Massachusetts Rep. Richard Neal, top Democrat on the House Ways and Means Committee.

Following the release of the first White House tax study on Oct. 16, Sen. Chuck Schumer (D., N.Y.), the Senate minority leader, said the Trump administration was using "fake math" and "deliberate manipulation of numbers and facts."

Since the last recession ended in mid-2009, the U.S. has experienced one of the weakest but also one of the longest economic expansions since World War II. This year, growth appears to have picked up a little.

GDP advanced at a 3.1% annual rate in the second quarter of 2017 and a 3% rate in the third, the Commerce Department said Friday, marking the economy's best six-month stretch since mid-2014.

The White House's top economist said that is partly because companies are counting on lower taxes.

"The part of the economy that was just horrifyingly bad in the last few years -- the capital deepening, the capital spending, the business fixed investment -- has recovered some this year," said Kevin Hassett, chairman of the CEA. "I think what's happening is that firms are optimistic both because of regulatory reform but also because they expect corporate tax reform and overall tax reform."

If that reform doesn't materialize, business spending could well return to its former "disappointing path," he said.

Write to Jeffrey Sparshott at jeffrey.sparshott@wsj.com

(END) Dow Jones Newswires

October 27, 2017 12:36 ET (16:36 GMT)