Trump may tout $4,000 worker benefit in tax pitch

President would argue middle class stands to benefit from corporate tax cuts

Oct 11, 2017 @ 4:07 pm

By Bloomberg News

President Donald J. Trump will try to make the case that corporate tax breaks would benefit middle-class wage earners Wednesday evening – and an excerpt of his speech suggests he'll use a measure of salesmanship.

Trump is expected to say the typical American household would get "a $4,000 pay raise" from facets of the planned legislation that would cut the corporate tax rate and end the current U.S. practice of taxing corporations' foreign earnings, according to part of the speech released by the White House.

Economists disagree on just how much individuals benefit from corporate tax breaks, but even Trump's own economic advisers have said that the $4,000 benefit he plans to highlight would only materialize over eight years. On an annual basis, it's closer to $500.

(More: GOP tax battle looms over advisers and their clients.)

Trump has often repeatedly pitched the tax plan that he and congressional leaders released last month as a boon for middle-class families. But until now, he hasn't offered many specific numbers to back that claim – and the plan itself contains too few details to determine its precise effects across individual income levels.

On Wednesday, during a speech in Harrisburg, Pa., Trump is expected to tell a crowd of truckers how they'd be "major beneficiaries" of the plan, according to a senior administration official who spoke on condition of anonymity. The outreach is aimed at having appeal beyond Pennsylvania – "truck driver" is the most common job in 29 states, including Pennsylvania, according to Census data. The president may try to reinforce his message during an interview with Fox News Channel host Sean Hannity that's also part of his Harrisburg schedule.

Trump's remarks are part of an effort to counter independent policy groups' studies that say the Republican tax blueprint would benefit the highest earners – and that it might mean higher taxes for at least some middle-income taxpayers. One study, which used details from previous Republican plans, found that about 30% of Americans making from $50,000 to $150,000 per year would ultimately pay more.

INDIVIDUAL RATES

Republican leaders have blasted the studies for assuming specifics that weren't in the framework they released Sept. 27. For individuals, that framework calls for reducing the seven existing tax rates to three, and cutting the top rate to 35% from 39.6%. Congress would have the option of creating a fourth bracket with a higher rate for the highest earners.

In Harrisburg, Trump will tell truckers that they stand to benefit not only from proposed cuts to individual tax rates, but also from lower taxes on manufacturers that will stimulate growth and raise demand for trucking, the senior official said.

The president is also expected to say that truckers will benefit from changes to the way pass-through business income – such as that earned by limited liability companies or sole proprietorships – is taxed. The framework would cut the top rate on such income to 25% from 39.6%.

While truckers often work as independent contractors – making them eligible for a lower rate on pass-through income – it's not clear how many would benefit from a 25% rate. According to the U.S. Bureau of Labor Statistics, heavy and tractor-trailer truck drivers had median pay of $41,340 per year in 2016. At that level, the top marginal tax rate is already 25% for single individuals.

But pass-through businesses that earn especially high amounts of business income – like investment partnerships or large law firms – would see a major cut from the top marginal rate of 39.6% if the new rate is applied generally.

CORPORATE CUTS

Trump and his advisers have argued that cutting the corporate tax rate will benefit workers by encouraging companies to expand and offer higher wages to attract employees. The GOP tax framework would cut the corporate tax rate to 20% from 35%.

Multinational corporations would be allowed to pay even lower – but still undetermined – rates on an estimated $2.6 trillion in earnings that their offshore subsidiaries have accumulated.

And going forward, such companies wouldn't have to pay any U.S. tax on most of their offshore earnings any more – a major change from the current system. The U.S. currently applies its corporate income tax globally – though companies are allowed to defer paying that tax on foreign earnings until they return it to the U.S, or "repatriate" it.

(More: Trump vows to make changes to tax plan.)

That deferral provision has led companies to stockpile multibillion-dollar profits overseas to avoid U.S. taxes. Changing the system would allow them to bring money back immediately, providing economic benefits to all, Trump will say, according to the senior official.

"My Council of Economic Advisers estimates that this change, along with a lower rate, would likely give the typical American household a $4,000 pay raise," Trump will say, according to a speech excerpt.

Actually, Kevin Hassett, the economist who chairs Trump's CEA, said last week that if U.S. companies no longer left their foreign earnings offshore, "workers in 2016 would have received a raise of nearly 1%."

"What if these firms didn't do that for the next eight years?" Hassett said in a speech sponsored by a pair of Washington tax-policy groups. "The median U.S. household income would get a $4,000 real income raise."

Trump's administration has tended to emphasize the benefits that corporate tax cuts bring to individuals more than other economists do. For example, Treasury Secretary Steven Mnuchin has said that workers bear 70% or more of the corporate tax burden – which is expressed through lower wages.

The Congressional Budget Office uses a figure that's closer to 25%.

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