Kevin Hassett, chairman of President Donald Trump’s Council of Economic Advisers, visited The Heritage Foundation moments after House Republicans released their tax reform plan Thursday. The Daily Signal’s Rob Bluey spoke to Hassett about his role in the White House and initial reaction to the GOP proposal. This is an edited transcript of the interview.
Bluey: Can you tell us what the Council of Economic Advisers is and the advice that you provide to President Trump?
Hassett: If you look at the Council of Economic Advisers’ founding in 1946 and the Employment Act, it was basically established because Congress decided that the Great Depression was perhaps prolonged by the lack of sound economic analysis in the White House. In order to entrench the role of free-market minded economists in the White House, they constructed the Council of Economic Advisers.
Our job is to be in the White House and to advise the president with objective analysis based on the latest scientific evidence. We are a staff of about 35 economists and assistants. We answer questions like, “What happens when we do this or when we do that?” We base those answers on the latest learning and latest science.
Bluey: Let’s talk about the House Republican tax plan. Some of the highlights coming out this morning. You previously have done some work on the tax reform framework. What are your initial thoughts?
Hassett: There is a heck of a lot to like in the House plan that President Trump made clear that he has three main non-negotiable objectives for this tax bill. There needs to be a big tax cut for the middle class. There needs to be a corporate tax rate that goes down to 20 percent and makes our country competitive again. And it needs to be a lot simpler, so that we don’t have a situation where almost every American doesn’t have to hire someone to do their taxes for them. We want simplification.
There needs to be a big tax cut for the middle class.
The House bill very well accomplishes some of those objectives. The president is also very respectful of American history and of the political process that our Founding Fathers designed. This bill is going through regular order, which means you don’t have to vote for it before you see it or anything like that. The committees are putting together bills that they have negotiated amongst themselves. They have to put it through the floor. Everybody has time to see it before they vote on it on the floor. The Senate is going to do the same and then they will work out their differences.
The president thinks that restoring regular order, the kind that is supposed to exist in our democracy, is a crucial part of getting this thing done. Because then everyone on the Hill will have a chance to influence this thing or that thing and all get on board and comfortable with that decision.
Bluey: That’s right and while we’re seeing some of the details today, you’ve been engaged in conversations with the Big Six, as they’re known, and other members of Congress. One of the things that the Council of Economic Advisers has done is produce reports that have highlighted the significant benefits to the American worker. You’ve looked at the corporate tax rate cut, for instance. Can you tell us what that would actually mean for the American worker?
Hassett: We’ve put out two studies using four different methods to estimate the impact on the typical American household using the proposal of the 20 percent corporate rate cut. We have not yet analysed the individual side, the big middle-class tax cut, which will also be a big positive in the end I’m sure when we look at it.
On the corporate side, we estimate that the typical family will see a $4,000 pay raise because of the tax bill. The pay raise is not weird mystical magic at all. It’s just hard science.
[W]e estimate that the typical family will see a $4,000 pay raise.
Right now, we have the highest corporate tax of the developed world. Businesses tend to want to locate their plants in other countries because if you make money in Ireland, you pay 12 percent tax. If you make money in the U.S., you pay almost 40 percent when you count state and local taxes. By going down to 20 percent and changing some of the rules, this plan will make it so that businesses will want to locate their activity here. When they do that, that will increase the demand for workers here and drive up wages here.
There is this big literature that looks at how other countries have fared when they’ve done a similar thing. That literature has a wide range of estimates, but really on the conservative end, I think that literature suggested that families will see the $4,000 pay raise when this bill becomes law.
Bluey: At the same time you’re putting out those reports, though, Senate Democrats have been pounding away saying this is going to be a tax hike on the middle class. I want to hold up a story today from The Washington Post fact-checker that is headlined “Senate Democrats falsely claim GOP tax plan will raise taxes for most working-class families.” This fact-checker, Glenn Kessler, gave four Pinocchios, which is, I believe, the highest number of Pinocchios The Washington Post will hand out.
Hassett: Yeah, there are a lot of [Pinocchios] there.
Bluey: You gave a speech in October to the Tax Policy Center, the organization from which the Democrats were deriving some of their numbers. You were critical of the analysis the Tax Policy Center had done. Can you explain why they were premature in putting out their analysis?
Hassett: The fact is that the Tax Policy Center is a bunch of skilled economists who are very good at taking a set of assumptions and telling you what that set of assumptions means for how much people pay in taxes and so on—so long as you ignore the growth effects on the economy. Ignoring growth effects, they’re very good at taking assumptions and mapping them to taxes.
President [Emmanuel] Macron of France ran on the idea that they should cut the French corporate rate to 25 percent.
The problem is that we specifically set out a process where a lot of the assumptions were going to be determined by regular order. The whole point was that different people have different ideas about the trade-off between equity and efficiency. Maybe you want the 12 percent bracket to end at $40,000 and maybe I want it to end way above that, and then we argue about that in committee and then we write a bill, and then we all vote on it. That’s the process we all agreed to.
What the Tax Policy Center did is fast forward to the end, made assumptions of what the output of the process would be, and those assumptions weren’t really friendly to the supporters of the bill. When I called them on that, it really was just about jumping ahead. I don’t think I would expect them to give a wrong answer if they had the right assumptions, but it seems kind of inappropriate to make up assumptions that were harmful to the advocates of the bill at that early stage of the process. That’s what I criticized them for.
If The Washington Post, which usually isn’t friendly to Republicans who are adversarial toward Democrats, is giving four Pinocchios to people to cite that study, then that’s probably confirmation that I was on the right track.
Bluey: What’s the biggest misconception you want to correct about tax reform?
Hassett: The idea that there are these capitalists and these workers and that they’re at war with one another, and if you cut the tax on capitalists, then you’re giving money away, money to big business and the swamp and it won’t benefit workers and so on. That’s a very outdated view of the world.
I don’t think that workers view themselves as at war with capitalists the way that popular discourse suggests that they do.
Most workers like it when their employer does well. If you work for a company and they have a positive earning announcement, then that makes you feel good. You’re more likely to get a raise. Your job is more secure. I don’t think that workers view themselves as at war with capitalists the way that popular discourse suggests that they do. That’s because they understand the basic economics that every other country understands. If we are a friendly place for business and job creation then that’s good for people who want jobs. This is not that controversial of an idea.
In my speech at the Tax Policy Center, I reminded the people there that President [Emmanuel] Macron of France ran on the idea that they should cut the French corporate rate to 25 percent, 10 percentage points below ours. The French already started with a rate below ours. Syriza, which is the party that runs Greece, their party’s name translates roughly to the coalition of the far left or the radical left. The coalition of the radical left wants to have a lower corporate rate than we do.
It’s not because they’re tools of big business or that they’ve been bought off by the swamp, but rather because they understand the basic economics that I think too many people in America have been in denial about.
Bluey: Tax reform is an issue that we’ve seen President Trump highly engaged on. He gave a speech a couple of weeks ago to The Heritage Foundation. He tweets about it frequently. What has it been like working with him? Can you give us an inside scoop about why is this so important to him personally?
Hassett: President Trump has been a very successful businessman. He knows how to add up the bottom line and see if things make sense or not. He has great intuition on tax reform and how it will impact people’s lives.
The thing I’ve seen in the Oval Office with President Trump is a strikingly effective intuition about how this all works and how it all fits together.
When he has successful projects, he sees how those successful projects employ thousands and thousands of people. His profits have gone up, and then his workers wages have gone up. He understands these connections—that we need to be a friendly place of business in order to improve the lives of Americans.
The thing I’ve seen in the Oval Office with President Trump is a strikingly effective intuition about how this all works and how it all fits together. The thing also that I see, that’s certainly not something that I possess, is an ear for negotiation. The idea that he thought, well, let’s start with the most important things, the middle-class tax cut, the corporate rate to 20 percent, and simplification. And then make those non-negotiable from the very beginning. I’ve seen that those anchors that he has set have a big effect on the evolution of the bill. They are things that everyone concedes have to be part of the final bill.
Below is the full event video of Hassett’s conversation with Heritage tax policy expert Adam Michel.