US President Donald Trump has tasked his top economist with winning one of the most important arguments in politics right now: convincing the voters and lawmakers that it’s workers who would be the big winners in the president’s plan to cut the corporate tax rate.

Whether Kevin Hassett, Trump’s newly minted Chairman of the Council of Economic Advisers, can successfully make that sales pitch will go a long way toward determining whether Trump’s massive tax cut plan ends in success or failure.

Just one month into his new job, Hassett has rushed into the debate about the economic impact of tax cuts with assertions borne from decades of research in tax policy. He says the White House’s tax cut plan would grow the economy and wages much more than some other economists believe, and he’s ready to push back on what he thinks are erroneous forecasts.

“My job is to provide objective analysis to the president — and really to the public — about important economic policy issues,” Hassett said in an interview. He said he will provide Trump and the public with a range of outcomes from different economic proposals, while also trying to “guide people into thinking what the right answer is.”

It hasn’t taken long for critics of Hassett’s new role to pounce. Former Treasury Secretary Lawrence Summers last Thursday called some of Hassett’s assertions about wage growth tied to corporate tax cuts “ludicrous.”

“I think it’s an absurdity,” Summers said on CNBC.

Last Wednesday, Hassett said tax cuts of the size envisaged by the White House would result in an economic boom that sends wages soaring across the economy.

“The truth is a tax cut like this very conservatively will increase the median wage about $4,000 a year,” Hassett said last Wednesday at an event as the Newseum in Washington, DC, referring to a change that would allow multinational companies to bring earnings back to the US. He said that over time, the tax cuts could amount to median wage increases of between $10,000 and $20,000 for US workers.

Hassett described these findings as “back-of-the-envelope”.

Hassett’s assertion is that cutting taxes on businesses has a much larger impact on wage growth than many economists believe, and that wages will get a jolt when the corporate tax rate is cut.

But Hassett’s views are much different than other economists and even Wall Street firms, who have said the impact could be minimal while adding more than a trillion dollars to the government’s debt.

“I have no idea what the hell he’s talking about,” said Mark Mazur, director of the Tax Policy Centre who was a top tax official at the Internal Revenue Service and the Treasury Department after Hassett offered a precise estimate of what would happen to wages if companies bring earnings back from overseas.

The Tax Policy Centre has found that the outline of Trump’s tax plan would provide a disproportionately large benefit to the wealthiest Americans, something that Hassett has said is unfair because details of the tax changes are still being worked out.

Mazur oversaw a team at the Treasury Department during the Obama administration that authored a paper that found that a corporate tax cut would have some impact on wage growth, but nowhere near the impact that Hassett has argued.

A number of liberal economists cheered with Hassett was picked to run the CEA, feeling that he had the academic backbone to help prevent the Trump White House from pursuing ideas that were too far outside the mainstream..

He’s not a political novice, having advised presidential campaigns.

Up until Hassett joined the White House, members of the White House’s loosely organised economics team were often at odds with each other, with National Economic Council Director Gary Cohn working to see if deals could be cut with Congress and Peter Navarro pushing the White House to hold a tough line on trade policy.

Senior White House officials plan to really lean on Hassett’s research as they look to counter expected forecasts from the Congressional Budget Office and the Joint Committee on Taxation that tax cuts have only modest benefits when it comes to wages and economic growth.

His critics have seized on some of Hassett’s past forecasts that didn’t materialise. He co-wrote a book in November 2000 entitled “Dow 36,000: The New Strategy for Profiting From the Coming Rise in the Stock Market.” The book was not prescient, as the stock market soon entered a giant correction.

Similarly, he co-signed a letter to then Fed Chairman Ben Bernanke in November 2010 that argued that the central bank’s current policy could lead to “currency debasement and inflation.” Neither debasement nor large-scale inflation followed. It’s tax policy that Hassett is often turned to for expertise, and it is where he seems to have made an immediate impact within the White House.

Hassett believes wage growth has been too slow, in part because it has become too detached from corporate earnings, arguing that companies have been allowed to store profits overseas in places like Ireland and strip any benefits away from workers.

The White House’s tax cut plan, Hassett believes, will allow — and perhaps even force — companies to bring that money back to the US, which he says will boost wages.

“This is a subject on which Kevin has done research himself,” said Alan Auerbach, director of the Robert D. Burch Centre for tax policy and public finance at the University of California, who served as Hassett’s dissertation adviser.

“His paper has found larger effects on wages than some other papers have found. But I think the criticisms of his analysis have been more that the results seem too high, not that there’s any methodological problem with what he’s done.”

Auerbach, considered one of the top US scholars on the impact of tax policy changes, has co-authored more than 10 papers with Hassett.

Hassett joins an economic team at the White House that is noted for its wealth and Wall Street ties, while he is known for past work at the American Enterprise Institute and the Federal Reserve.

— Bloomberg/The Washington Post Service

Published in Dawn, The Business and Finance Weekly, October 16th, 2017