On Tuesday, June 26, two of Washington’s top economic policy newsmakers — House Ways and Means Committee Chairman Kevin Brady (R-Tex. and Council of Economic Advisers Director Kevin Hassett — responded to those questions in a series of live interviews at The Washington Post.)

One-on-One with Council of Economic Advisers Chairman Kevin Hassett:

Coratti:            Good morning, everyone.  I see some people sitting in the back.  We’ll bring in some chairs for you.  My name is Kris Coratti.  I’m vice president of communications and events here at The Washington Post.  Thank you all for joining us.  It’s been six months since the tax reform bill was signed into law.  So this morning, we’re going to evaluate its effects so far, look at its potential future impact, and discuss the overall health of the U.S. economy.  I’d like to thank our sponsors for this event, PWC, who you’ll hear from in just a little while and Georgetown University’s McDonough School of Business.  All right, I would like to go ahead and get started.  We’ve got a packed program.  I will welcome to the stage The Washington Post’s White House economic policy reporter, Damian Paletta and chairman of the Council of Economic Advisors, Kevin Hassett.  Thank you.

Paletta:            Well, thanks so much everyone for being here and especially thanks to Kevin Hassett for coming.

Hassett:           You’ve got 25 minutes of me.

Paletta:            I know, hurry, hurry, hurry.

Hassett:           We’re already on the clock.

Paletta:            [LAUGHS] Back the clock up.  Anyway, I’m happy to kick off our tax reform discussion.  Kevin is the chairman of the White House Council of Economic Advisors.  And just so you know, he was confirmed by the Senate with an 81-16 vote, which is essentially like being a unicorn.  It’s unheard of these days in Washington.  So it’s a real—

Hassett:           But I lost both of my home state senators, not that I’m counting.  I’m from Massachusetts.

Paletta:            Anyway, before we get started, I just wanted to remind the audience in the room and those watching online that you can tweet questions for all of our panelists using the #PostLive and we’ll try to get to some of them.

Hassett:           Or also RealDonaldTrump if you want to tweet questions, here I am.

Paletta:            [LAUGHS] Yeah, well, speaking of the president’s Twitter feed, actually—

Hassett:           It did happen once on TV by the way that he tweeted while I was on TV about what we were talking about.

Paletta:            Oh really?  Was it liberating because you hadn’t seen it and you couldn’t respond?

Hassett:           I just felt like I was in this new world order where the media is changing.

Paletta:            Well, I actually have several questions for you about the tax law.  But if we can just start with the news of the day and actually what the president tweeted this morning about a major U.S. company.  Yesterday, we saw the Dow Jones Industrial average fall 300 points.  And so it’s down about 2,500 points from its peak in January.  It sounds like a lot of this is due to escalating fears about trade wars.  There was a lot of optimism after the tax law passed and now, there’s a lot of concern.  And I think you’ve used the word uncertainty but now we’re seeing companies actually change their behavior, prices are going up, steel and lumber.

Harley Davidson, a major iconic U.S. company said that it was moving more of its operations outside the U.S. to avoid Europe’s retaliatory tariffs.  And the president responded very angrily responding very angrily saying that they were waving the white flag.  What’s your response to that?  Do you think they’re waving the white flag?

Hassett:           Well, first, it is correct that uncertainty is that about the markets and economists call uncertainty a mean, preserving spread in what might happen.  And so the idea would be that the average is still zero, but you increase the tails and the distribution.  And I don’t think that uncertainty is really the right characterization for what’s going on right now because the mean itself is hopefully going to move.  The president has a clear objective of moving the world to a better place with more reciprocal trade deals with lower tariffs and lower tariff barriers and non-tariff barriers and we’re in the midst of negotiation to move us in that direction.  And so I think that the direction is not zero.  The direction is positive and the OECD put out a study of what happens with Donald Trump’s vision of the world becomes true and they found that global GDP goes up, U.S. GDP goes up, and so on.

And so I think that that’s the ultimate objective but, of course, uncertainty, while you’re trying to accomplish a big objective is something that can rule your markets and that’s something that we’ve seen, I think over the last few months.  But the bottom line though is that moving past Harley Davidson to the data, if you look at what’s going on right now because of the tax reform, which is the title, right, of our event, then there’s a massive amount, an explosion of capital spending, but especially an explosion in the location of investment in the U.S.  Foreign direct investment skyrocketed about 10% in the first quarter, the repatriation of earnings by U.S. multi-nationals was like about a factor of 10 bigger than what it was in the fourth quarter.  And so there’s a massive amount of activity coming home and so Harley Davidson is an interesting story but if you look at the data, then it’s the opposite that’s happening.

Paletta:            But what are companies supposed to do?  Are they supposed to wait it out and get to that point along the spectrum where everything works out and we do have this kind of consorted global growth or in the meantime, are they supposed to face these higher tariffs, whether it’s in Europe, Canada, wherever?  Because it sounds like some companies are laying off workers in the real—

Hassett:           Well again, the hope is that we make—the president wrote the book, The Art of the Deal, right?  It’s all about making deals and other presidents have wanted to improve our trade deals, which aren’t reciprocal.  The Europeans have 10% tariffs on our cars already and we’re trying to fix that and so sure, they’re retaliating right now along with—I guess they’re saying it’s because of the steel but we’ve got big objectives to lower tariff barriers between our countries.  And right now, they’re targeting this and that and we understand that that’s difficult for those companies.

But again, I think that if you were to take the retaliation from the Europeans and then add in the benefit of the tax reform, then even for Harley Davidson, they’re way, way ahead and that’s why when you look at things like sentiment indicators—Morgan Stanley has an indicator of capital spending and again, firms spend money on capital when they’re optimistic.  It’s the highest it’s ever been.  And so I think that for sure, there’s a lot of stuff going on in the trade space but it’s small relative to the overall economy and in the data, it’s being dwarfed by the positive news of the tax reform.

Paletta:            So do you think that companies can kind of absorb this uncertainty for now or this sort of back and forth and then there will be a resolution, do you expect, in the next three months?

Hassett:           I don’t know the timing.  I’m not a trade negotiator but I hear reports from Ambassador Lighthizer about positive progress on that and I think we’re all hopeful and the president himself desperately wants to make the deals better, as have other presidents and I think this is a president who has a good shot of accomplishing it. 

Paletta:            So the tax law passed in—

Hassett:           And that will be really good for Harley Davidson and for everybody else.  think of how good it will be for U.S. autoworkers if the Chinese 25% tariff on autos goes to zero and the European 10% tariff on autos goes to zero.  That would be very good, right?  So that’s the sense of what I’m saying is it’s not just uncertainty, it’s directional.  I think that there’s a really good shot with all of the leverage that we have that the president is going to make the deals a lot better.

Paletta:            Right, but I guess on the flip side, everything’s sort of going in the other direction.  It seems like, at least publicly, the president in one of his tweets this morning said that this report was almost ready on European cars, you know, opposing national security in the United States.  He threatened a heavy tax against Harley Davidson if they move operations outside the United States.  So a lot of the rhetoric is in the direction of more adversary or adversarial than everyone sorts of working together to get a deal.

Hassett:           Right, and I’m not a poker player, a dealmaker, I’m an economist but I think that the president’s objectives are clear and I was heartened by—I guess it was The Wall Street Journal.  It’s the unusual story that wasn’t broken by you, right?  That the Europeans were coming with an offer on autos that was to take the tariffs all to zero and that’s the kind of progress that I think that the economic team was hoping for.

Paletta:            So the tax law passed six months ago—

Hassett:           And by the way, a lot of times, you guys have to cover the division on the team, but what I just said, I’ve seen Peter Navarro say that in rooms and on TV very often.  And so I think that the ultimate objective is something that’s shared by the entire team and the question of how you get from here to there is something that previous administrations have failed to do and I’m sure that there’s like a divided opinion about what the best strategy is.

Paletta:            Do you feel like you have input in this trade negotiation in the White House?  Are you there to sort of crunch numbers?

Hassett:           Right, so the 46th Act established the Council of Economic Advisors as a component within the White House that is—I think it’s a beautiful, unique, wonderful thing that we bring in economics professors from all around the country that spend a year basically answering the question, “What does the economics profession think would happen to the economy if we do this or if we do that?”  And we probably worked on—at one point, we were counting that it might be 14 different topics a day because almost every question that comes up in the White House, even if it’s something like what’s going on in Venezuela requires economists to give an opinion and yes, we’re in every meeting.  If people are considering options then we analyze the options and we suggest what would happen if we do this or that in just about every economic sphere.

Paletta:            On the tax law, six months in, what has happened that you sort of expected?  What has happened that’s surprised you?  What issues are you still expecting to see a drop?

Hassett:           The thing that surprised me the most so far is how precisely the data had come in exactly as we expected with our models in the fall and we went back and looked at what we were saying in November if the tax bill passed and I could share this data with you.  But one of the things that surprised people about the tax bill was that it actually had a bigger incentive for structures investment than for equipment investment even though structures don’t qualify for expensing, and the reason is that a really long-lived asset is basically being taxed by the tax rate.  And so if you get it from 35 to 21, then it really increases the incentive for structures investment and so while we were analyzing it, I was saying stuff like that, but it was sort of a surprising thing to see but then we get the first-quarter GDP and our estimate of what would happen to structures was that it would go up 14.2% because of the tax bill and it should jump immediately in the models that we used and in the first quarter GDP, it went up 14.3%.

And we thought that equipment would go up about 9%, but I think it went up 8-something percent.  We thought intangibles investment would go up around 11%.  It went up around 11%.  We said 9% for overall investment and it was like 9.2.  And so the biggest surprise and I’m sure that the second quarter, it looks like, is going to be way above those numbers.  But the real surprise for me was that the models worked, and they worked not only in the top line but in the sort of cross-section.

Paletta:            Is there anything that underperformed or got out sluggish from the gate from your projections?

Hassett:           No, would say everything has surprised on the upside.  Don’t forget that back when we wrote our growth forecast last fall for this year of just a little bit north of 3%, that everybody was like, “Oh, these guys are crazy,” and I had economists that advised previous presidents—there was one quote that every time I went on CNN, they would play the quote.  I don’t have to say the person’s name, where they introduced me like this on CNN because they’re so collegial towards this White House, you might have noticed.  “That Kevin Hassett is either stupid or a liar or both.”  But that was over the 3% forecast and now we look and everybody’s forecast is above ours.  Right?  And so I think that mostly I’m surprised on the upside.  The wages have gone up faster than we thought.

Paletta:            Are the wages going to catch up to your projections, though?  You were on the record last year in the middle of a debate saying—

Hassett:           $4,000 was the number, yeah.  That’s right.  So what happens is that capital spending goes up because of the tax bill and then workers become more productive and then firms have to pay them a higher wage because they’re more productive because they have better machines to work with and the example I used in the fall, which is still what I always think of is that when I ran a lawnmower business when I was a kid, I got a self-propelled mower and it made more productive.

Paletta:            I had the same, yeah.

Hassett:           And it really fundamentally changed my ability to mow lawns because I’d be so tired because pushing that thing without the self-propelled.  But yeah, we thought in over three to five years, that the average wage in the U.S. would go up by $4,000 and that was basically the capital accumulation happening that our models predicted.  And so think about it, I just mentioned that the first quarter capital spending number came in precisely on expectation and so we are on the path to get that extra money.  But the thing that surprised me is how many firms, looking ahead to a tight job market and a lot of higher productivity have increased wages already and so—

Paletta:            Through bonuses or through wages?

Hassett:           Well, bonuses and wages both.  And also, increased 401(k) contributions but we keep track of this.  We’re closing in on seven million.  We’re north of six million workers have received an average increase of 1,200 bucks.  But some of those people in the database have already gotten the 4,000 and to put the 4,000 in perspective, Walmart increased their minimum wage by $2 an hour and if a full-time worker gets a higher wage by $2 an hour, then that’s pretty close.  It’s getting up into the high 3000’s, so let’s just say it’s getting closer to 4,000.  And if the lowest paid guy at Walmart is already this year getting something that’s within hailing frequencies of the $4,000 then it makes the $4,000 number seem pretty reasonable, right?  But during the tax debate when our analysis, which again was just math and data was saying the $4,000 number, then you would have thought that it was a crime against humanity to assert such a thing.  But the fact that the lowest paid guy at Walmart is almost getting that.  In the first year, when we said it’d be three to five years, it suggests the thing is working.

Paletta:            Do you expect the companies that offered those bonuses right out of the gate to offer bonuses again?  Because clearly, those companies are going to get recurrent tax cuts.

Hassett:           Right, well, there’s a big literature on wages and how they tend to be sticky and I think even bonuses, it depends on whether your bonus is like a performance-related thing that’s tied to the profits of the firm, in which case, the bonuses fluctuate.  But I would anticipate that these bonuses will stick and that when we see the wage data—think about it this way and I’m sure we’ll talk about this next, say February.  So what should happen is if the bonuses don’t stick, then wages should go down.  Because they got an extra 1,200 bucks this year, but then they don’t get it next year.  But I predict that wages will not decline next year, that they’ll go up probably nominally five percent, something like that.

Paletta:            And so the—

Hassett:           Of what I’m seeing in the capital spending.

Paletta:            The data you’re seeing, it looks like the data shows that wages are increasing at about the same rate they did before the tax law passed.

Hassett;           That’s incorrect.  I had just recently tweeted a chart about this but the Employment Cost Index—it’s a measure of nominal wage increases, which it turns out that labor economists don’t want you to adjust for inflation because you’ve got—the nominal wage measure is noisy and the inflation measure is noisy and so if you take two noisy things and divide them, then it’s even more noisy.  And so to look at what’s going on in the labor market, it’s pretty widely accepted.  You should look at nominal wage growth with the Employment Cost Index.  I remember when I worked at the Fed.  It was Alan Greenspan’s favorite measure of this and the Employment Cost Index right now over the last three months that we have data is increasing at an annual rate of 4%.  And that 4% increase is the highest we’ve seen since at least 2006.  I have to say, at least 2006 because they changed the way they make the data in 2006 and comparing before then is difficult.  But it could really be the highest that we’ve seen in 20 years.

Paletta:            Before you joined the White House, you wrote quite extensively about the deficit and concerns about the fiscal trajectory of the country that goes back decades.  Do you worry that a legacy of this tax law could be its impact on the deficit?

Hassett:           Well, no, I think the deficit is skyrocketing, but it’s not a legacy of the tax law.  It’s a legacy of the spending deal that just happened that spent a lot more than the president wanted.  And the way to think about the tax deal, by the way, is that the static score was about 1.4 trillion over 10 years.  The corporate side was that it would cost about 400 million and the individual side, it was about a trillion.  On the corporate side, the 400 billion that it would cost as a static score, clearly, dynamically, we’re getting more revenue than that back.  In fact, if you look at the CBO’s current estimate for corporate tax revenue over the next 10 years, that it’s above of what their estimate was a year ago before the tax bill already.  And so the cost of the tax bill, the loss of taxes that’s on the individual side—

Paletta:            That includes pass-throughs, right?

Hassett:           Right, but 700 billion of the trillion.  Now granted, there’s pluses and minuses and so you can pick but 700 of the trillion, 700 billion of it was a refundable child credit, which can only have a positive dynamic effect on the economy really if you think it’s going to affect fertility, which will take at least nine months to discover that.  So I think that if you’re looking at the tax bill and saying, “Geez, it blew a hole in the deficit,” then you really need to be upset about the expansion of the child credit and I think there are a lot of social justice arguments for why if we’re going to target tax relief, we should do it on families with children because that equalizes opportunity and while we might disagree about the exposed income distribution, I think we all agree that we should try to equalize opportunity.

Paletta:            So do you feel comfortable that the tax law will ultimately end up paying for itself or adding revenue to the federal balance sheet?

Hassett:           Again, I think that if we grow an extra percent a year, remember, when we took office, the president promised 3% growth.  I think we’re almost certainly, I think right now, our internal models say it’s about 80% that we’ll have a full year of 3% once we get second-quarter GDP in.  That if you grow 3% instead of say, the 2% that we inherited for 10 years, that’s an extra percent a year.  That’s not just tax.  That’s deregulation and whatever else we do.  But a percent a year, that gets 10% higher GDP in the 10th year and I guess GDP in the 10th year right now is estimated to be about 28 trillion, so you get about $2.8 trillion more GDP.  Or let me put it this way: so right now, the deficit over 10 is about a trillion dollars higher because of the expansion of spending and because of the CBO’s unwillingness to have much growth effect from the tax bill.  But GDP over the next 10 years is what, more than four times higher.  I think it’s about six times higher than that.  So would you trade a trillion dollar increase in the deficit for 6 trillion more GDP?

If you have a model that says you shouldn’t do that, then you probably should check your model.

Paletta:            But you’re kind of assuming that there won’t be a recession, that we’ll go 10 years with no economic setback, an external shock or anything.  And I think in American history, we’ve never gone through a period this long without any kind of recession or something like that.  So couldn’t it be exacerbated—

Hassett:           You’re right, that a recession would change the trajectory and if you go back and look—I haven’t checked every CEA forecast forever, even though it really is, as you know, the main job of the CEA is to do the forecast for the government of what GDP growth will be.  I don’t think a recession has ever been forecasted by the CEA and the reason is that economists generally aren’t very good at saying when the recession is going to happen.  But I would say that over a 10-year period, the odds of there being a recession unconditionally are probably like north of 50-50, for sure.  And that’s something that one needs to factor in.  But the forecasts that we do are based on sort of the average of upside and downside scenarios and that’s the way all CEA chairs have done it.  The typical CEA forecast over time is a little bit higher, over 10 than the forecast that we have, which is for an average of about 3% growth over 10 years.  The average for CEA chairman in the past has been maybe about a quarter percent above that.  Our forecast was controversial when we came in because the previous administration had said that we’re stuck in this new normal with growth.

Remember, they had 1.5% growth as we were taking office, with growth that was low because there was this exogenous force that was driving growth low and that we’re stuck at 1.5 forever and anybody who says anything differently is stupid or a liar or both.  Well, our view was that we could change policies and return us to the normal-normal, not the new normal of 3% growth.  And so far, that is looking pretty good.

Paletta:            So on September 29th last year when you did come out with your forecast of the $4,000 increase per worker over three to five years, that was something that you put out before the bill passed and it obviously, got a lot of people talking about different models and stuff like that.  Contrast that to trade where you guys have been kind of quiet about what your forecasts are on what could happen.  Can you let us in or tell us a little bit about why you guys haven’t been more public about your economic forecast on different scenarios in the trade debate?

Hassett:           Sure, the CEA has multiple roles about our primary role is to provide documents that help decision-makers decide what to do and those documents are covered by executive privilege.  They’re not made public.  They’re not viable even just as if Kellyanne goes and talks to the president, that’s a private conversion and 99.99% of the things that we do are never made public.  Even to the point where it’s a challenge for me that I’ve been noodling about that we do a lot of stuff that would be very useful to future CEA chairmen because we have to figure out some really tricky issue and it takes a lot of time to do it and it would be useful if they could have our memo, but they can’t.  And so I, when I wanted to see, well, what did the CEA advise President Bush or what did they advise President Obama?  That I’m not allowed even to see those memos.  And it’s almost everything that we do.  And so when we make something public, I think that it’s because we have a very specific objective of driving a debate with our analysis and I think it was very natural in the fall to have us do that on the tax debate because I’m a tax economist.  I spent my whole career settling things like the wage effect of taxes and I thought that at that moment in the public debate, there was a heck of a lot of confusion about how to think about what would happen.

Paletta:            There’s a heck a lot of confusion now.  Companies are leaving.  Harley Davidson is going to move some jobs and other companies.  There’s a mail company in Southeastern Missouri that might go out of business by Labor Day.

Hassett:           But there’s a lot of good analysis out there.  There’s a heck a lot of voices like the OECD’s analysis of what happens if this goes to the good equilibrium.  It’s very solid analysis.  If I were to do an analysis, I think I would probably get something similar.

Paletta:            So you don’t think there’s a downside, negative?  You haven’t forecast that there will be any negative impact of a tariff, counter-tariff war between the U.S. and other—

Hassett:           I can’t talk about what we’ve done that we haven’t made public, but again, it’s very rare that we do.  So I would say the two big things that we did make public last year were the tax bill and the opioid report.  Obviously, there’s an opioid crisis in the United States and we looked at previous estimates of the cost to society of the opioid crisis and found that they didn’t include a value of the lost lives.  And that when we did include a value of the lost lives, that we found that the opioid crisis in 2016 cost the United States 5, $600 billion and I think that that report drove a lot of discussion about opioids.  But again, it’s very infrequent for us to do it and it has to be something where we put something out there that sets the record straight and people are confused about it.  I think it’s pretty much when decision makers decide that we have to publish the document.

Paletta:            The last jobs report came out.  Obviously, there was a lot of surprise in the market when the president tweeted that he was looking forward to the numbers.  Without getting into what the prior administration did, do you expect any change in the protocol based on that?  Are you guys going to do anything differently?  Are you going to be tweeting that you’re looking forward to job numbers?

Hassett:           I am very much.  I can say it right now, I’m very much looking forward to seeing the jobs’ numbers.  And as you know, it’s traditional for the CEA chairman after being voted out of committee to start as a consultant at the White House.  And so I just hit my one-year anniversary of being in the White House, but you can’t be the chairman and sit in the office until you’re confirmed by the Senate.  But ever since I got there, Gary Cohn or I, every single day—every single day that there’s data coming out tomorrow, the CEA chairman is the only person in government that gets the data a day ahead of time and then the CEA chairman can communicate it to the federal reserve chairman, the president, the Treasury secretary, and the NEC director.  And every single day we do that and the president loves the data.  A lot of times, our five minutes on his calendar per day turn out to be half an hour or 45 minutes because he’s so into the data and we’ve been giving him the data a day ahead of time ever since I can remember being in the White House and his tweet that he was looking forward to seeing the data was not a violation of protocol because he didn’t say what the number was.

But I agree with those who say that it’s probably best if we not be tweeting an hour before the data come out.

Paletta:            So you won’t do anything differently in the future, but you expect that maybe—

Hassett:           Every single time we remind everybody of the protocols and moreover, watch very carefully to make sure that there are no signs that the data has gotten out.  It’s one of my main jobs is to protect that and we take it very seriously.  We don’t talk about things on open phone lines.  There’s even a little story.  It might take longer than 20 seconds but one of the previous CEA chairmen had a tradition that if the data were really interesting, then he would walk across West Executive over to the White House to meet the president and word got out.  And so hedge funds were watching to see if he walked to the White House because they could then figure out whether it was big news in the data.  And so I have a practice that I walk over to the West Wing every time I get new data, but I don’t always go up to the Oval.

[LAUGHS] And again, that’s because you don’t want to say it on the phone.

Paletta:            Right, you don’t want to telegraph it.  Well, great.  Well, Kevin, thank you so much for your time.  It’s been great having you and I want to hand it off now to my colleague, Libby Casey, who will be talking to a panel of tax experts.  Thank you so much.  I really appreciate it.  Thank you.

The business of tax reform:

Casey:             Good morning.  Thank you so much for being here.  I’m Libby Casey, the on-air video politics and accountability reporter here at The Washington Post.  And we’ll continue our discussion today looking at business and workers, and how both the tax law that went into place affected them and also what we’re looking at to the future.

Joining us, Seth Hanlon from the Center for America Progress, a former economic advisor to President Obama.  Next to him, Caroline Harris, vice president for tax policy at the Chamber of Commerce.  And to her left, Chris Shelton, the president of the Communication Workers of America.  Rounding us out, Aric Newhouse, senior vice president at the National Association of Manufactures.

Let me remind everyone here in the room and watching us online that you can join the conversation.  Send us questions using the hashtag #PostLive on Twitter.

So Seth Hanlon, I want to start with you.  We just heard from Kevin Hassett, the chair of the Council of Economic Advisors, painting a rosy and positive picture of the tax bill.  He says wages have gone up faster than thought.  What’s your view?

Hanlon:           Well, if you just look at the data, wage growth over the last year, in real terms, from last May to this May has been zero, 0.0 from last May to this May.  So nominal—you know, wages have gone up a little bit in nominal terms, but that growth that been entirely eaten up by the rise in prices.  So, you know, gas prices, healthcare, whatever else.  And so we absolutely are not seeing any rise in real wage yet.

Now, it’s possible.  Of course, you know, he talked about that we’re seeing an explosion in business investment.  And in theory, over time, if there is a huge explosion of business investment and workers become so productive, and they find a way to share in the—to bargain for wages where they share in the fruits of that increased production—which they haven’t yet—they could see a wage increase.  But we certainly haven’t seen it yet.  And we’re not seeing any kind of explosion in business investment.

In the first quarter, there was a slight uptick, but it was less than we say in the first quarter last year.  And we’re not even at the levels that we saw in capital investment that we saw from 2012 to 2014.  So, obviously, it’s early, but the early returns are not very promising.

Casey:             Caroline, I want to get you in the conversation here and have you respond to this.  Much of the return of the tax breaks have gone to investors, to companies that have been able to do buy-backs to shareholders.  What about workers and everyday Americans who—how are they—[OVERLAPPING]

Harris:             Sure.  So a stock buy-back is a way to distribute retained earnings.  So I think it’s true that, you know, that is—for years, we had people complaining about the fact that corporations were hoarding cash.  Now we have people complaining about how they’re distributing that cash to shareholders.  So, I mean, okay.  But I mean, I think the reality here is that the money that is going back to shareholders, when companies do stock buy-backs, they see an increase in stock price, they see an increase in stock value.  That value goes to the 50% of Americans who hold stock.  That value goes to the 4 and $10 in market investment that is held in retirement plans.

So, to me, starting—just to the premise of your question, stock buy-backs that benefit 50% of Americans and retirees ultimately, over time, are not a bad thing.

Casey:             Chris?

Shelton:           You know, when the tax bill—when they were talking about it, employers were coming out saying that they were going to give a $4,000 wage increase.  That just has not happened.  It’s not on the horizon to happen.  We’ve seen—and they were going to increase jobs.  We’ve seen jobs.  For instance, one of our employers, AT&T, where we have about 110,000 people, said they were going to increase jobs by 7,000 jobs for every billion dollars in tax cut.  Well, they got a $3 billion tax cut and we’ve seen 6,000 layoffs since the tax cut happened.

Casey:             You know, the Communication Workers of America, and some other of the nation’s largest labor groups, have asked for details from companies about just exactly what is happening, how are they using the gains from the tax cuts.  What have you found out so far?

Shelton:           Absolutely nothing.  They’ve refused to kind of tell us so far.  We’re filing charges with the NLRB where we’re in contract negotiations—for instance, with AT&T, with American Airlines—because, by law, they have to tell us what’s happened with that money and they’ve refused so far to do it.  We pretty much know what’s happened with it.  It’s all stock buy-backs and bonuses to CEOs.

Casey:             I want to give Caroline a chance to respond—[OVERLAPPING]

Harris:             Sure.  I would say that, you know, look, in the wage space, I think the reality is this: wages languished for eight years under the Obama administration.  We see wages, as Kevin Hassett hit on—I’ll disagree and look at nominal wages.  We see them improving in the past year since this administration came in, largely due to deregulation.  Now they are continuing to improve as tax reform works its way through the economy.

I would caution everyone today, we are six months into tax reform.  We have had 31 years of this tax code deteriorating.  So I think it’s key to give tax reform a little bit longer to work its way through the economy.  That said, as it does, I would expect labor markets to constrict and to see worker wages rise.  So I will take Kevin Hassett’s approach to the issue.

Casey:             Aric, I want to get you in the conversation.  The Joint Committee on Taxation report released in April shows that benefits for businesses—for example, like pass-throughs—are not actually impacting small businesses in the way that some had anticipated and hoped because pass-throughs can be a range of businesses.  So what should be done to help some of these mom-and-pop businesses?

Newhouse:      Yeah.  Let me, I guess, begin with what we’re seeing in the manufacturing space, on the jobs, and again, I think it will inform that question.  So 2016, the first five months of the year, the manufacturing sector lost 16,000 jobs.  2017, same period, first five months, the manufacturing sector created around 63,000 jobs.  This year, we’ve already created 115,000 jobs.  So, now, again, you could make the argument that that is just accidental.  I would make the argument that there is a direct relationship between what we’re seeing in the economy and what Congress and policymakers did on the tax code.

So from my perspective, again, the manufacturing sector, there’s an optimism that we’ve not seen before.  I’m actually—I was pretty sure that things would be great in the manufacturing sector.  We actually surveyed our members to say, “Hey, what are you actually seeing?  What are you doing?  What is happening?”  And the numbers—I actually am surprised by them, so I actually have a piece of paper in front of me to make sure I don’t screw them up—95% optimism about the future of the economy, 95%.  We’ve been asking that question for 20 years.  This is the highest number we’ve ever seen.

Seventy-seven percent plan to increase hiring, 86% plan to increase investment, and 72% plan on increasing wages.  So, again, that kind of—the small, medium size—let me kind of answer the question more discreetly.  I think about a company in Mount Vernon, Ohio, about 45, 60 miles northeast of Columbus.  There’s 450 employees there, 2,000 across the country.  Ariel corporation raised its wages by 13% this year.  That’s pretty powerful.  And it’s directly related to the tax bill.

Casey:             Chris, from your perspective, what are workers feeling?  We’re hearing a lot of optimism, according to NAM in their latest survey, but what’s your perspective on workers?

Shelton:           Workers are feeling quite left out because they were promised certain things by this tax cut, by not only the president, but Ryan and McConnell and the employers.  It’s just not happening.  For instance, the manufacturing sector, we represent a lot of people in the manufacturing sector.  And just this morning I got a notice that GE is laying off 300 people in Virginia.  So the numbers that they’re talking about here, I don’t see happening on the ground.  And workers don’t see it happening at all.  And their wages are not going up.  And the whole premise that when productivity rises, wages rise is proven by history to be completely incorrect.  Because for the last 30 years productivity has been zooming through the ceiling in the United States and wages have stayed stagnant for 30 years.

Casey:             What would your members like to see in the next version of a tax bill?

Shelton:           Some way to get companies not to use the money for stock buy-backs and to use it for wage increases and investment in businesses in the United States, not overseas where the tax bill—another promise that was made was that they would be bringing back work from overseas.  Well, under this new tax bill, the tax right for profits made in overseas concerns for American businesses is half what it is, of the 21% it’s only 10.5% in profits made overseas.

Casey:             Caroline, could there be a component in the tax bill that states how workers should benefit and really lays it out because if what you and Aric are talking about, how workers will ultimately benefit anyway, could it be codified?  Could it be really written—[OVERLAPPING]

Harris:             So I think the reality is the ability to do stock buy-backs is permissible under SEC rules.  It’s not under at tax-code rule.  It’s under a 1982 SEC rule.  So I think it’s sort of a different thing.  I also think—

Casey:             Well, companies are choosing what to do with the money—[OVERLAPPING]

Harris:             Right.  And I think the decision to do a stock buy-back—and I can’t comment on a specific company.  You talked about things.  You know, oftentimes, we see—there was an article in CQ over the weekend that talked about stock buy-backs and it talked about companies laying off people.  And the reality is, is the stock buy-backs are a result of a huge amount of retained earnings.  They need to distribute cash.  You can absolutely use retained earnings for plant and equipment investment.  You can use it for worker training.

But the reality is, on the workers’ side, whether you need workers, a lot of these things are being laid off are a part of restructuring plans that were implemented five years ago.  And the reality is, the need for workers is driven by supply and demand.  If I have 200 workers in New Jersey and I don’t need them there anymore, as a CEO in charge, I’m not going to keep that.  I’m going to reallocate that capital elsewhere.

I think we’re sort of—it’s a false choice to say that you have to choose between stock buy-backs and worker retention.

Casey:             Seth, I want to bring you back into the conversation to respond to that, but also to talk about this idea of how worker wages actually go up.  And is it something that happens because of a tax law or is something that happens just because of supply and demand?  What’s out there in the market?

Hanlon:           I think it’s because of supply and demand but it’s also because of bargaining power and the power that workers have to negotiate higher wages for themselves.  You know, and the rules around collective bargaining, the rules governing things like the minimum wage and overtime.  And we’ve seen the Trump administration take aim at all those rules and all those protections.  And so I don’t think it’s any surprise that wages aren’t going to keep up the way some pure economic would show because I think the recent decades have proven that there’s something broken.  The link between productivity—as Chris mentioned—the link between productivity and wages is broken.

And that’s exactly why—as many of the critics of the tax bill said before it passed—simply giving more cash to corporations that were already flush with cash, that were already seeing record-high profits, was not going to translate into higher wages.  And that’s what we’re seeing so far.

Casey:             What would you like to see in a new tax bill?  Is there something that could be on the plate that you could be happy with, given the current Congress?

Hanlon:           Well, I think the main thing—well, I don’t know about given the current Congress.  But maybe we’ll talk about next year.  I mean, I think the main thing is—well, for the current Congress, let’s not dig the hole deeper, right?  They already added $2 trillion to the debt.  And the deficit this year is going to be $200 billion higher than it would be.  Next year it’s going to be $280 billion.  And over 10 years, it’s $2 trillion.  Despite what Dr. Hassett says, the tax cut will not pay for itself.  Tax cuts do not pay for themselves and no one believes that, with the exception, possibly, of Dr. Hassett.  But no one believes that.

This is important, not just abstractly.  It’s important because that’s going to create pressure on Social Security, on Medicare and Medicaid.  And I think workers understand that.  The American people understand that.  Is that when we give $2 trillion away predominantly to people at the top and to corporations, they’re going to pay for that in the end.  So, to answer your question, what I’d like to see is to roll back some of those tax cuts for people at the top.

Casey:             Caroline and Aric, what would you to see in phase two, as we’re hearing it may be cooking for tax reform?

Newhouse:      So the tax bill had a direct impact on the creation of 115,000 manufacturing jobs.  I think it’s hard to say to those 115,000 families, “You have not benefited because of the tax bill.”  Think about going home every night to your family and having a job that you didn’t have before, directly tied to this tax bill.  So from my perspective, thinking about next versions of tax, a conversation around going back to an environment in which the manufacturing sector was losing 16,000 jobs in the first five months of 2016, not the great path.

Instead of kind of looking at it from, “Let’s rein in, slow down, and hamper job development and wage growth, and putting more families in a position where they’re able to pay for themselves.”  And an $82,000 income is the average manufacturing worker.  Say to those families in the future, “We want to do more of that, not less of that.”  Tax bill 2.0, 3.0, whatever this turns into, whose goal is to do more job creation for the manufacturing sector, that should be the goal.

Casey:             Caroline?

Harris:             I would add we’d like to permanency in some of the spaces.  We obviously had to make choices because of revenue confines, that certain provisions were temporary.  I think things like the pass-through, the small-business provisions, making them permanent.  Seeing permanency is capital expensing, cost-recovery space, would be things we would advocate for.

Casey:             Chris, we just heard from Aric a positive picture of how manufactures are feeling and therefore their employees are feeling in job creation.

Shelton:           It’s amazing to me because of where I sit, hearing that the tax bill—which is only six months old—has created 116,000 jobs in the manufacturing sector because I see lots of layoffs in the manufacturing sector.  But you know, what we need is we need to make sure that anything in the future is pointed at workers, not at corporations and CEOs and the wealthy.  Because this tax bill is all for those folks and not for workers, and workers just will not benefit and have not benefited from this.

It’s just the opposite, actually, because what’s going to happen is they’re going to come back and they’re going to try to do things to Social Security and Medicare and Medicaid, and those things are things that workers depend on.  And CEOs and corporations don’t really on them.  So we need something to make sure that those things are all right.

Casey:             Should we look for pay-fors in programs, like the safety net programs in America, should those be mined?  The big question of how all of this will get paid for, especially if some of these cuts are made permanent, whether it’s related to the estate tax or whether it’s related to businesses?  Caroline?

Harris:             Sure.  Look, I think, you know, I’m not going to throw out pay-fors.  That’s kind of counter-intuitive to what the Chamber does.  But I will say, look, we do think that you need to look at those programs.  We do think that you should look at entitlements and probably have a conversation about spending.  So is that part of the tax conversation to us, probably not.  But we probably think you should look at them in a different way, that, you know, Mr. Shelton thinks you should look at them, but I do think we should look at them.

Newhouse:      I would say, so the tax bill, $1.45 trillion over a 10-year was the score, I think, at the end.  Entitlement spending over a 10-year period will be $35.2 trillion, 1.45- and $35.2 trillion.  We absolutely need to have a spending conversation in this country.  Entitlement reform needs to be on the table.  But have some context here.  The long-term debt and deficit issues are not being driven by $1.5 trillion score over a 10-year period.  The long-term debt and deficit issues are being driven by entitlements.  Let’s have that discussion.  The Chamber, to their credit, has been talking about this for a long time.  We couldn’t agree more.  There’s real issues that have to be dealt with.  And now, we’ve missed too many opportunities over the years.  It’s a great chance to move that conversation forward.  Let’s have it.

Casey:             Seth, can you respond to that?

Hanlon:           I mean, there you hear it, right?  So we were promised that this tax bill would pay for itself.  It’s going to cost $2 trillion.  So whatever you think about the issues on the spending side, we increase the debt by $2 trillion.  It’s going to be more over the long run, especially if they extend some of these tax cuts.  And every penny that we just gave away in tax cuts is going to have to—under this point of view—is going to have to come out of those programs.  So why, if we have such problems with deficits and debts, why is the number one legislative priority of this administration to increase those debts by giving away tax cuts to corporations and wealthy people?  It’s only going to make the challenges we have with important programs, like Social Security and Medicare, much worse.

Casey:             Can we have this conversation without talking about tariffs and without talking about trade wars?  Chris, is that the big elephant in the room right now?

Shelton:           Yeah.  In the last couple of weeks I guess it is.  And you know, tariffs and trade wars are not good things for working people, for sure.

Casey:             Caroline?

Harris:             I think I’ll take this occasion to agree with the gentleman to my left, for once.  I think, look, one of our biggest concerns is—and we have disagreement here—we think there are benefits to the tax reform efforts.  We think absolutely a trade war and tariffs will roll back those positive impacts.  I think we saw Gary Cohn say this over the weekend.  I think there’s universal agreement almost that this is going to hurt an economy which could be benefiting from this tax reform.  So we certainly don’t want to see that.

We already see Harley-Davidson, over the weekend, issuing responses as a result of E.U. tariffs.  Our goal certainly was not to have manufacturing moved outside the United States.  If that is the result of a tariff, we should be giving pause and reconsidering what is happening here.

Casey:             So should that be part of this discussion, as legislators talk about phase two of a tax bill?  Should that be on the table as well?

Harris:             I mean, I think that the reality is, in political timing, that phase two of a tax bill is probably likely after August recess and the tariff conversation is now.

Casey:             Is that an important distinction for all of you, to have the tariff conversation now?

Newhouse:      It’s on everyone’s mind.  I mean, obviously.  You talk to the business community—the context here matters in that there are real systemic structural issues in the international environment that have to be dealt with.  The fact that we’re having a meaningful conversation around it is positive.  The next steps, I think, are the open question and it’s really the yellow flag.  But from my perspective, 20-year optimism—and that optimism survey was offered in the middle of the second quarter, as the tariff conversations were starting.  People knew what was coming.  The president’s been very clear in his comments through the campaign of where his head was on the underlying issues.

The manufacturing sector looked at that.  They heard it.  They were aware of it and said 95.1% of them are optimistic about the future of their economy and the future of their company.  I think that gives you a sense of where things are right now.

Casey:             That’s such an interesting analysis, that people in your alliance would have seen that tariff conversation happening and so they could sort of predict or understand what would be coming down the pike.  I mean, Chris, has there been a surprise among workers at how tariffs play out and how they’re becoming part of our conversation right now?

Shelton:           Absolutely.

Casey:             Because it sounds good, keep American jobs here, buy American.

Shelton:           Right, yeah.  Except that it doesn’t always work out that way when you have the tariffs that are sitting there and the trade wars.  That’s going to hurt jobs in the United States and probably all over the world.  And you know, you said that we need to have legislators talking about it, well, if you can get a legislator to talk about it, let me know because I haven’t heard them talking about it at all.  Maybe we’re up here talking about it, but the legislators are not talking about tariffs or trade wars at all.  The only that is, is the president.

Casey:             We’ll have a legislator here in a little while, so maybe that will come into the conversation about taxes.  Bringing us back to some of the things that came up, obviously, in the first tax law that was passed back in December, let’s talk about individuals and how individuals are impacted, and whether or not some of those individual impacts should be made permanent.  Seth?

Hanlon:           So the tax cuts for individuals were modest and they were temporary.  And over the long run, they’re offset so that most people in the United States would pay higher taxes and 83% of the benefit of this tax bill would go to the top 1%.  But I think even in the short term, and even if we extend these tax cuts, people are getting hurt on the flipside.  So the tax bill, you know, repealed a key part of the Affordable Care Act, the individual mandate, and the Congressional Budget Office says that’s going to raise healthcare premiums by 10% on top of whatever other increase they would see in the individual marketplace.  And we’re already starting to see insurance companies raise premiums for next year and attribute that to this provision of the tax bill.

So that’s just another way.  And we talk about tariffs, which are a regressive tax on consumers, that’s another way that middle-class people are paying out-of-pocket and with the benefit likely swallowing any short-term modest benefit they might get from the tax bill, if they are getting a benefit.  About 9 million people are seeing their taxes increase by the tax bill.

Casey:             Chris, what’s your perspective at CWA on how breaks have affected American workers?  If we’re seeing deductions go up?  If we’re seeing individuals and couples be able to look at their taxes over this next year and see some number changes?  Are your workers part of that?

Shelton:           We’re seeing slight increases in—or decreases, actually, in what people are paying in taxes, but they’re clearly on the wrong side of the ledger when it comes to what they’re paying for healthcare and what they’re paying for gasoline and what they’re paying for almost everything.  And when you add in tariffs and trade wars, the tax cut, even the small amount that workers have gotten is going to be eaten up by all of that.

Casey:             Aric, can you respond to that?

Newhouse:      Again, I go to that 2,000 employees for one company that received a 13% increase in their wages.  Another company that comes to mind is Staub Manufacturing, north side of Dayton, Ohio.  Steve Staub and his sister started the company.  They had 24 employees.  After the tax cut, tax reform bill passed, the added 13 employees.  One of the things that has really been interesting in the course of the discussions, it’s kind of a macro, economic wide, what’s going to happen.

I would kind of point to a guy named Corey the Welder.  And Corey the Welder got some fame tied to the president’s State of the Union Address where he was kind of highlighted as, “I, Corey, was able to buy a house, my first time actually owning something, because of the impact that the tax reform bill had on Staub Manufacturing and had on him and his family.”  That’s what this has got to be about.  So thinking about, you know, long term, it matters.  But take stock of where we are.  There’s 115,000 families that have a job that didn’t before.  Steve Staub and his 13 additional employees, and Corey the Welder has a house.  That should be what the issues are.

Casey:             Seth?

Hanlon:           I mean, we can go back and forth and sort of match anecdote for anecdote.  Obviously, there are workers and people struggling in this economy.  There are people, as Chris mentioned, have been laid off.  But let’s just look at the data.

Job growth has been about 200,000 per month, that is over the last year-or-so and since the tax bill has passed.  That is less than we saw in 2014, 2015, 2016.  And we’re not saying that’s because of the tax bill.  It’s certainly not.  But on the flipside, we just haven’t seen any kind of renaissance.  What we’ve seen is a continued economic recovery that began in 2009.  And on the real wage growth side, again, from last May to this May, real wage growth—which is the bottom line.  I mean, that is the thing that matters for workers in this economy—has been 0.0.

Now, maybe in the future we will see that go up, but we just haven’t seen it yet.  And because all of the nominal increase in wages have been eaten up by healthcare prices, by gas prices, and by other costs in this economy.

Casey:             Since CWA and other unions are looking for the numbers on how businesses are using the gains from the new tax code, Caroline, should those businesses just release those numbers and show everyone sort of how they’re truly being impacted, bottom line?

Harris:             Well, I think businesses have certain filing requirements, whether it be with the IRS, Treasury, NLRB, SEC, and they should always comply with the law.  I think in terms of for us, just to kind of throw my hat into this debate, look, we’re talking about the 600 companies that have made positive announcements, who have said, “We’re giving bonuses.  We’re increasing workplace training.  We are increasing charitable contributions.  We’re focusing on the 48 states.”  You hit on gas taxes rising.  They do that this time of year.  I think it’s small in proportion to what is going back into people’s pockets.  We’ve seen 48 states reduce consumer energy cost.  We are seeing the American worker keep more in their pocket.

So, for us, this is the first step.  This is a short-term benefit, but this is a long game; we did comprehensive tax reform to get long-term, sustainable economic growth.  I think we should give it more than six months to work through.  You know, look at it at a year, look at it at a year-and-a-half, look at it at 5 years, 10 years, to really understand how the policy works and the benefits of it.

Casey:             So should we pump the brakes right now, pause, and look at tax reform, say, in the next Congress?

Harris:             No, I think we’re seeing things—I think we’re seeing benefits now.  I think we’re going to continue to see benefits.  I think, as I kind of highlighted earlier, as this continues to work its way through the economy, will we see upward pressure on wages, will we see increased capital investment?  Companies are still digesting this.  I mean, so let’s give it a little time to work through—[OVERLAPPING]

Casey:             I didn’t get a true answer, though.  Would it help, do you think, worker confidence if they could see the numbers and they could see some breakdowns?  Because we’ve seen from some companies, the breakdowns of—

Harris:             Sure.  And the true answer is—

Casey:             —how the benefits—[OVERLAPPING]

Harris:             —that I think whatever they’re entitled to, you know, under NLRB, under SEC, under those—[OVERLAPPING]

Casey:             Just based on the law that exists—[OVERLAPPING]

Harris:             Yeah, that’s what they should have to share, absolutely, in compliance with the law.

Casey:             But not going forward.

Harris:             I don’t know—I’m sorry.  I don’t know what you’re specifically asking for, so I can’t—it’s hard for me to comment on.

Shelton:           We’re asking for where the money went.

Harris:             Right.  And if that’s something you’re entitled to, absolutely, but I think companies have responsibilities to shareholders and fiduciary duties and they have to keep that in mind as well as they make investment decisions, as well as they make decisions to make sure the company goes on.

Shelton:           And we’re asking for where the money went because we know who didn’t get it.

Harris:             Well, and I think that’s—

Casey:             Unfortunately, we do have to end the conversation.  But we will continue this conversation in the green room, I have a feeling, in a few minutes.

Harris:             I still think tax reform’s a good thing.

Casey:             Thank you so much to all of our panelists.  And thank you for watching.  I’ll hand things over now to our sponsor for the next segment.  Thank you everyone.

Harris:             Thank you.

Shelton:           Thank you.

Content from PwC: Optimizing Tax Reform to Reshape Business Strategy:

Camp:              Hi, good morning.  I’m Dave Camp, and I’m a former chairman of the Ways and Means Committee, but I’m currently with PwC as a Senior Policy Adviser.  And I’m joined with a couple of my colleagues, Barry Jaruzelski, who leads our U.S. Industrials Practice with an emphasis on auto, defense, and aerospace; and also Larry Jones, who is also a partner with PwC in our value consulting practice, and he helps companies and assists them maximizing their shareholder value.

So one of the things that I’m here to talk about today is really the sort of sustainability of the tax reform act, which I hear a lot about as I travel around the country.  And really, clearly, we’ve heard a lot about sort of the economic sustainability in the early part of this program.  Certainly in the short term, it looks that way from the information that we’ve heard.  But I think really the long-term political sustainability is something that really will depend on really this longer term view of how it does, how wages increase, whether companies reinvest in the United States, whether jobs go up.

But if you look at sort of why the tax reform act happened, it really was a sense that the great recession was not recovering fast enough, and that we needed to do more in terms of economic growth.  And then secondly, one of the things was that we really weren’t competitive as we look at competing around the world.  So those two factors really drove tax reform.  So I think it will be very difficult going forward, given the way the bill was put together and what was done, to completely unwind tax reform.  We saw how difficult it was for Congress to try to unwind the Affordable Care Act.  I think in some ways, tax reform will be the same way.  And if you look backwards at sort of the George W. Bush tax cuts, most of those were maintained in 2012 during the fiscal cliff, and most of those were made permanent.

So going forward, I think you’re going to see an attempt really to sort of address some of the shortfalls.  It looks as though there will be a tax reform 2.0 that addresses some of these individual provisions that expired in this current bill.  But I think as you look at some of the changes on the international side of the tax bill, it’s going to be very, very difficult, I think, to sort of go back to a worldwide system of taxation for example, after making those changes.

And as you look going forward—let’s assume that Congress completely changes hands—there’s a Democrat House, a Democrat Senate, and say, after 2020, Democrat president—if you look at some of the ideas that Democrats have put out there, if they were to take the majority and have sort of all the levers, you’d still, unless you were doing something in reconciliation, need 60 votes in the Senate.  But if you look at their infrastructure bill, it really would depend on what they want to spend things on and what they might need the money for.  But even in that proposal, Democrats raised the corporate rate to 25%, reinstated the individual top rate, and repealed some of the estate tax changes.  I think two areas probably—but I don’t think you see the corporate rate going back to zero.  So I’m really interested in hearing from my colleagues on some of the other matters.  It’s all yours.

Jaruzelski:        Okay.  Thanks, David.  Obviously, as consultants consulting to corporate America, we’re focused on what are companies actually going to be doing with the funds that have been freed up.  I mean clearly as the previous segment highlighted, shareholders are going to get a fair share of what happened, but we’re really focused on what are you going to do with the money for enhancing the internal operations of companies?

And there’s two big things.  People are going to be looking for ways to drive growth.  One, inorganically—you’re already seeing a surge of mergers.  I think we’ve already hit the trillion dollar mark for the year, which is going to make it another record year for merger activity.

But the other big piece is investing in organic growth and building capabilities.  And from the recent survey that PwC conducted of what people are planning to do with the proceeds and the benefits from the tax bill, two areas kind of pop to the top.  I mean the first is 61% of companies said they were actually going to increase R&D spending, and the second big area is digital—investing in digital assets.  And that’s actually going to be kind of interesting to see how that plays out.  Because of how capital expenditures are being treated, a lot of deferred investments in digitization in all sorts of overhead activities are going to be done.

But I think the other thing we’re seeing a lot of in dialogues with our clients is investing in digital operations—basically, you know, the factory of the future kind of thing you often hear about, but now people actually have the funds and I think the confidence to take that digital investment actually to the factory floor, which is a pretty non-trivial exercise.

I think the big kind of shoe that we’re always going to be wondering about how it’s going to drop is how that’s going to impact employment.  Because a lot of these investments, particularly in digital factory, are to enhance efficiency—that I can up quality, I can up efficiency, I can almost have a lights-out factory operation with minimal increase in employment.  Now, that’s great for productivity increases.  It will make wages a smaller portion of what the factory costs are, but how that actually plays out in terms of factory employment I think is kind of a question mark.

So I think there’s a lot of activity.  I think the only hesitation that we’re seeing right now—several people have alluded to it in the past hour—is what happens with all the trade dialogue that’s going on and whether that uncertainty is going to create hesitation.  Because the big potential benefit is looking at your global factory footprint and all your supply chain, which involves all of these pieces of whatever you’re making moving across borders.  And if you were thinking, hey, I’m going to take the proceeds and invest in factories, and I have a supply chain that’s international, well, I may just say wait.  I may have to say, stop, let’s sit back—which of these things are actually going to remain, which are just negotiating tactics by various governments?  So I think there’s a little bit of hesitation on things that might have happened, but the things that are going to be happening very quickly next 12 to 24 months is increased R&D investments and increased digital investments.  So with that, I’ll hand it to Larry.

Jones:              Yeah, I think Barry, those are really good insights.  And I think as you kind of drill down from the macro level to kind of micro-decisions that companies are making every day on where to invest, it gets really interesting.  So I got a news story here—taxes are really complicated.  [LAUGHTER] Coming from an accountant.  And that’s really true.  And actually the impact of tax reform impacts different investments quite differently.

So if, I think as was mentioned earlier, you know, if you have like a 10% internal rate of return project, ROI project, depending on where you’re investing and the impact of tax reform, that return could go up 3x, 30%, so you really want to invest in that.  Or it could literally change nothing.  And so when you’re talking about R&D and when you’re talking about capital expenditures and you’re talking about investment in the United States, especially for domestic and even small businesses, some of those investments are much more attractive than they were a year ago.  And that’s not politics, that’s just math.

And so the challenges that I see companies are facing is how to deal with that math.  And to be frank, most companies don’t think about taxes every day, and they don’t actually think about taxes oftentimes when they make big capital decisions and strategy decisions.  I’ve been doing this for more than two decades, and in many companies, it’s an afterthought.

You know, I think the challenge to companies here is that tax has to be part of the equation.  It has to be at that table when you’re thinking about allocating capital.  It has to be considered when you’re making a deal; otherwise you might way overpay, or you may lose out on a great opportunity.  And so what we’re seeing companies do to react and actually execute against the benefits of tax reform is really raising the profile of the tax department, the head of tax, and having that really becoming integrated into the business.  And I think that’s actually a very good thing, and I think it’s a real positive thing for companies to embrace.

Camp:              You know, that’s a very important point.  I’ve seen that as I’ve traveled around, that the tax departments really need to engage with the C-suite in a way maybe they hadn’t before tax reform.  They had a lot of practices.  There were some proposals on tax reform over the last few years—I worked on one of them—that really helped make that happen, so I think that was really important.

The other thing that I’ve seen too is a couple of surveys, one by the National Federation of Independent Business, showing that sort of the optimism in the small business community as a result of tax reform is very large.  And then Pricewaterhouse, PwC, just finished a survey with some of the larger companies in the United States, and it had a couple of findings.  And one of them was that tax reform would have a positive impact on their company.  Another was that it really did make the U.S. a more attractive place for investment.  And lastly, it made their companies more competitive.  So if in fact those things occur, I think you could see a sustainable tax reform legislation, but as you pointed out, this asterisk of what does this trade issue mean and what do the tariff—I mean is this really simply just going to be a negotiation, or will this actually be a long-term change in the way that trade and business is done in the United States, and will that factor in, and will people just hold back?

So there are some positive things in terms of sustainability, but obviously time will tell.  I think it is a long-term issue in terms of the economics.  But thank you very much for joining me here, and thank you all for being part of this program, and I’ll turn this over to The Washington Post at this point.  Thank you.

One-on-One with House Ways and Means Committee Chairman Kevin Brady:

Costa:              Good morning.  I’m Robert Costa, national political reporter here with The Washington Post, happy to be joined by Congressman Kevin Brady of Texas, Chairman of the House Ways and Means Committee.  Thanks so much for taking the time this morning.

Brady:             You bet.

Costa:              Really appreciate it.  I know you’re a busy man.  So Chairman, just looking at the news over the last 24 hours, a lot of businesses are happy, six months in on the tax law, but there also are some concerns about the president’s trade policies.  Do you share some of those concerns about the president’s trade policies, even as they are happy about the tax law?

Brady:             You know, my answer is I do, and I think it is having impact.  But just to step back a minute, here we are—it is very early in tax reform, just the impact, but the early signs are so very encouraging.  Really in six months, we’ve transformed the question from, in this country, where are the jobs to where are the workers, which is still a challenge, but a good one to have.  We want a tax code built for growth—of jobs, paychecks, the U.S. economy; and one that would leapfrog America back into that lead pack as one of the most competitive places on the planet.  We’ve achieved that, and we’re seeing that across the board.

I do think some of the trade issues are creating an uncertainty back home.  Certainly in Texas, we’re seeing this with our local manufacturers for the most part, and our energy industry as well.  I think the president has strong support for challenging China on their unfair trade practices.  Look, they’ve been—not just steel and aluminum, but the forced tech transfers, the stealing of IP—it is costing America tens of thousands of jobs.  A challenge for this president, as it has for every president, is how do you do that successfully—challenge China’s misbehavior in the trade world without damaging local jobs and businesses as you do it?

And I think the key here, and just to leap ahead to your next question probably, is you have to have an exemption process, an exclusion process, for fairly traded products that works.  And frankly, neither are.  And that’s where we continue to engage with the administration from USTR to commerce in the White House on making those processes work, because that’s where you make sure you don’t damage and impact that local economy.

Costa:              What about wages?  Why are they not going up more in this country?

Brady:             So we saw a couple things.  So this has been a long-term challenge, and I think tax reform at the end of the day solves this challenge.  We are seeing wage increases for the first time in nearly 10 years in the first quarter, but that’s a quarter.  We have to let that continue to play out.  I do think, at the end of the day—the prior panel talked about the incentives for new investment and new technology.  This tax code wasn’t just about encouraging businesses to buy more stuff—more equipment, new technology—it was to invest in the productivity of their workers.  That’s what drives economic growth for the long term, and that’s what drives wage growth for the long term.  It’s been missing from the U.S. economy for an awful long time.  I don’t think it’s going to reappear overnight, but we got the fundamentals right in the new tax code, and over time, it’s going to drive that wage growth up.

Costa:              We saw the bonuses after the tax law was passed.  Should we expect those same kinds of bonuses next year?

Brady:             So that will the call for those companies, but clearly, what we’re seeing—besides the bonuses—here’s an example, Russell Marine in Houston.  160 workers, so not major company, but a good mid-sized company.  So, very competitive industry.  So, they gave out almost a million dollars in bonuses.  They raised pay by an average of 10%.  They’ve already bought about $6 million of new equipment, including the largest moveable crane in Texas.  And they green-lighted the new company headquarters.  I was at their old one—it’s old, and they need something new.  And when you ask that CEO, you know, what does this year look like?  His answer was three words—“best year ever.”

We’re seeing that across the country, and, Bob, I’ll make one point—I think the best is yet to come on tax reform.  Because so much of this new code was designed to bring back jobs, investment, intellectual property, patents to the U.S., to create a giant sucking sound over time back to America.  And when I travel around the country, it’s already impacting where these new facilities will be, where the new research will be.  That takes time.  That takes long-time planning by a business.

And that’s where, frankly, trade issues enter into that decision making as well.  Businesses want that certainty, and so armed with a competitive tax code, I think they are hopeful, they can see progress on the trade front toward fair agreements with China, for example, so that the transition—these tariffs and the impact, frankly, fade away.

Costa:              Is there anything, though, the government or Congress can do, or at least pay attention to making sure that Americans are sharing in the profits?  The tax rate for corporations will remain lowered, but will companies continue to share some of those gains?

Brady:             You know, I think they will.  What we do know is what happens under the old tax code.  You know, paychecks for most families, and middle class families especially, had been stagnant for a decade.  Students coming out of school had very few opportunities.  And it seemed like every month we read in The Washington Post about another U.S. company heading overseas, moving something overseas.  That’s changed in a significant way.

And so I think, yes, I think workers—especially if you’re working in a small business today, the optimism of your small business mom and pop is the highest in 45 years.  U.S. manufacturers used to be the most pessimistic of any industry in America because they were seeing all those jobs in manufacturing, everything head overseas, including the headquarters.  So now they are the most optimistic in 20 years, and nearly 8 out of 10 manufacturers are either making new investments, raising pay, hiring more workers.  All again early but very positive signs.  And so yeah, at the end of the day, this whole tax code was designed to drive wages up and create more opportunity for families.

Costa:              Throughout my reporting, some of the institutions that are most anxious though about the tax law are tax-exempt organizations like churches and universities.  Do you have any message, perhaps reassurance to them that different provisions could be pursued by Republicans in Congress in the coming month to try to address their concerns about their status and different taxes they now have to pay?

Brady:             Yeah, so what I do know is that charitable contributions, whether it’s to your local church or your local university, expand when the economy grows.  They tend to contract when the economy is not doing well.  And we’ve seen that for too long in the United States.  And so, in the end, the net will be very positive for organizations who depend upon the generosity of Americans.

We are looking at some of those fine tuning and tweaks on the tax code.  Here’s my point.  Look, we just made major changes in this tax code.  Through bold rates, a redesign to be competitive—lots of big changes.  We ought to be open to making improvements and fine tuning it as we go along, because these are major changes.  So yeah, we will be listening very authentically with any organization that has improvements that we think we can make.

Cost:                I printed out the new 1040 form, the so-called “postcard.”

Brady:             Yeah.

Costa:              It is somewhat like a postcard, I guess, but do you think this is the best version possible?  Do you think any changes could be made?  It seems like there are other scheduling forms.  A lot of people file electronically with their taxes.  Looking back at this, this whole effort to make this a so-called “postcard,” was this effective, and could any new changes be made to it?

Brady:             So I think it is, from the simplicity standpoint—I’ll just observe—there’s a bit of a disconnect here between Washington, D.C. and the rest of the country.  The simplicity and fairness of a postcard-style system is important to the American families, and whether you like this form or something else, the fact is that 31 million more Americans won’t have to itemize to be able to get their full tax cut.  They’ll be using the simplest form available.  Nearly 5 million families won’t have to figure their taxes twice because AMT, the Alternative Minimum Tax, is no longer hanging over their heads.

And for a lot of our local businesses who use the individual tax code—that’s where they file—today, they spend almost $23 billion and almost half a billion man hours and women hours to figure these complex depreciation schedules.  They no longer have to do that, because they’re writing off those investments in the year they buy it.  It’s a complexity that has burdened especially startup businesses for a long time.  That’s gone.  So for families and local businesses, especially small ones, the postcard-style system is a simpler and better way to file.

Costa:              What are the economic costs to the president’s immigration policies that have caused so much controversy recently on separating parents from their children?

Brady:             You know, I don’t know that there’s an economic cost there.  Here’s sort of addressing maybe the larger picture here.  So now, the big question facing the country is where are the workers?  We’re leaving economic growth on the table, because now we have a competitive tax code—the opportunities to invest and grow and expand.  But everywhere I travel in the country, especially back home where we live, businesses of all sizes are just starved for more workers.  I think the solution is an all of the above strategy.  So, one, getting immigration policy right, including the four pillars bill we are going to vote on this week—

Costa:              Is that going to pass?

Brady:             You know, I hope so.  Because it is—

Costa:              But probably not?

Brady:             —unprecedented border security.  [LAUGHTER] It is—and the optimism of our local folks.  Look, this is tough stuff.  No doubt about it.  It’s eluded this country’s solution for 20 or 30 years.  We have an opportunity here—I hope we take it—to do it.

But back to the all of the above.  So you’ve got to get immigration policy right, to make sure it works for the economy long term.  Secondly, you’ve got to get your workforce right.  Look, we have all these myriad of job training programs, apprenticeships, all this, but they’re just not turning out the numbers we need.  That has to change.

And then thirdly, Ways and Means Committee’s already acted on this, but in welfare, we have millions of Americans sort of trapped on the sidelines that I think the government’s sort of given up on.  We are not.  We think we can move them to the frontlines of employment and help them keep that job as well.  So I think all three of those give us the opportunity to create a workforce that really allows the U.S. economy to take off for the longer term.

Costa:              You mentioned welfare.  Is there any congressional appetite among you and your colleagues to combine the Labor and Education Departments like this administration’s proposing?

Brady:             You know, I think it’s sort of too early to tell.  I think members are just starting to digest the idea of that.  I do know in this new welfare reform bill, which is JOBS for Success—we’re actually restoring the promise of Newt Gingrich, Bill Clinton ’96 welfare reforms, but we’re upping it even further to put more focus on those who want to get back into the workforce.  In doing that, we really create the coordination back home, at the states, where you’re tying in—for every person on welfare who’s work eligible, they’ll have an individual plan on how to get you, Bob, back into the workforce.  That includes looking at food stamps, housing, transportation, childcare.  And the new goal isn’t to get you into a job for two weeks, the new goal is to get you into a job and keep you there so you can start that career.  And that means we’re surrounding you with better services to allow you do to that.  And so I think the House is already starting to move on some of the concepts the White House has proposed in the reorganization.

Costa:              Chairman, you talk a lot about certainty for businesses and how you believe the tax law will provide some of that, but when I look at the calendar, you think there’s a potential government funding showdown this September, just a couple months before the midterm elections.  Should businesses expect congressional Republicans to be able to come to some kind of agreement and pass a bill, or will there maybe be a government shutdown if the president pushes for his proposed border wall and the billions he needs for that?

Brady:             I think the government will continue operating.  I think we’ll find a solution there.  You know, I continue to hope that we can find some solutions this week, both on security, visa reforms, and fairness for the DACA kids.  I’m hopeful that even if that doesn’t succeed, it’s sort of raised the profile of some of the solutions that we could put together to address this issue for the long term.

Costa:              What gives you that confidence though, that there won’t be a shutdown?

Brady:             Well, I just think, in the conferences that I’m in among House Republicans, especially the last four, I’ve heard some of the most thoughtful discussions on immigration, visa, and effective border security that I’ve heard in a long time.  Clearly, the same conference that’s come together on tax reform, on IRS reform, addressing the opioid crisis, and balancing regulation, I think those same dynamics are in place that we can advance if not an ultimate solution, some of the key parts that could form an ultimate solution.

Costa:              Speaking of certainty, a lot of businesses I have spoken to in recent days say they also have some questions about where is the House leadership going in terms of its makeup?  Do you think there’s any argument to have a House leadership election before November?

Brady:             I don’t.  I think frankly Speaker Ryan is the best person to lead this conference through the balance of the year, just as he has for his time as speaker.  He unifies us.  We have a bold economic agenda that we’re pursuing, and so I think that ought to remain in place.  Mainly because not only the quality of that leadership team, but because we need to be focused on delivering for the American people, to make the best case for November, and then, after the election, we’ll come back together to determine what our leadership should be.

Costa:              When you’re talking to your colleagues in the House GOP, what are the exemptions or deductions, maybe two or three, that they continue to bring up to you in recent months that you really want to perhaps pursue before the election or in the next year?

Brady:             Yeah, so permanence, without a doubt, is the number one request for middle class families and for those who work in small businesses, our local small businesses.  Because that permanence creates certainty over time, it actually contributes to growth, and frankly, they deserve that permanence.  It would have been there but for the Senate rules, so I think in tax reform 2.0, permanency for those middle class families and those small businesses will be the centerpiece.

Costa:              What is the timeline for 2.0?

Brady:             So here’s the schedule as I see it.  I think the Ways and Means Committee timetable will be to begin circulating a draft to House Republicans when we return after the Fourth of July break.  We’ll spend the month listening to our colleagues in the House about what they want to see in 2.0 and incorporating those changes.  I expect to see the legislative outline released in early August with votes in the fall, depending on when leadership wants to schedule them.

I don’t see it as one bill.  I see it as a package of two, three, or four approaches with permanency being one of them.  This tax code is huge, and there are areas, for example, in retirement savings that we didn’t get to in tax reform.  The House had prepared a lot of work, the Senate at the time had not, but since has done very good work in this area as well.  And so we think the timing is right to help families save more and earlier in their life, whether it’s for healthcare or school for their kids or retirement in the long-term.  We think there are some good ideas there.

And a point I’ll make is that 2.0 is really about changing the culture in Washington away from the wait 30 years in between tax reform, watch America fall farther behind our competitors, watch this tax code get junked up with a bunch of special interest provisions—that’s the old way.  The new culture is to continuously improve every year.  To never fall behind our competitors again.

And what I’ve asked our colleagues to do is to mirror what the most successful organizations that we know do, which is they wake up, business or your organization probably wakes up every day asking, how do we become more competitive, more innovative, better?  I want Congress very year to look at the tax code and ask themselves exactly the same three questions—how do we become more competitive, innovative, better?  And so that’s what we’re doing.

Costa:              I sense the momentum on the House side for this 2.0, but can you give me a clear sense of—will the Senate follow through this fall on 2.0?  You can move a lot of stuff out of the House, but will the Senate actually pick it up?  Or is Leader McConnell giving you a private signal, we’re done for the year for tax?

Brady:             So I think the House’s job is to develop the best 2.0 package to send to the Senate.  I think the Senate is vitally interested in what can get 60 votes, you know, that they can pass, because unfortunately, we won’t have the reconciliation instructions in place because of the budget.  And so our job is to deliver the very best ideas, and I’m confident Leader McConnell and the Senate Republicans will choose those areas they have the most interest in, and let’s move something to the president’s desk.

Costa:              But objectively, that means probably just before the election, probably—[OVERLAPPING]

Brady:             Well, I don’t know about the timing on that—[OVERLAPPING]

Costa:              Right.  But you’re setting up a future move in the Senate, but maybe not before the election.

Brady:             Leave that to Leader McConnell.  But we will be moving forward in the House this fall.

Costa:              I did want to ask before we close about a big picture question.  Critics of the Republican Party often bring up the tax law and they say the Republican Party did all this—dealt with President Trump’s conduct and his behavior—may have some private concerns or public concerns about it, but they did it because they wanted the tax law.  You’ve seen this kind of criticism from Steve Schmidt, the veteran consultant, George Will, the long-time columnist.  What do you make of those criticisms when you hear them, which, as you know, are out there—that the Republicans did too much to try to get a tax law passed and did too little to counter President Trump?

Brady:             So I disagree. I think Republicans work best when we’re united behind an agenda.  And I know in the House, as we developed our Better Way agenda, six top priorities for the country including tax reform, balance regulation, rebuilding the military—all those key things—welfare reform as well, that we worked closely with the president and continue to on that agenda.  I think that’s where we deliver most for the American public.

Do Republicans have differences with this president as we have with others—Republicans and Democrats?  Absolutely so.  But I still am convinced that when we are focused and unified on an agenda that actually grows this economy and helps families prosper and leap frogs America to the front competitively, that’s where we’re at our best.  And so we’ll continue to work that agenda with this president.

Costa:              Because there is that alarmism that’s out there about President Trump, even in pockets of your own party, yet there’s also some who say everything’s going fine.

Brady:             Well, I think—look, there are disagreements.  We saw that under President Obama as well in a number of cases, and we disagreed with President Bush while he was a leader coming from Texas—we even had some honest disagreements there.  I think that’s to be expected.  That’s why, again, personalities and strategies are sort of, in Washington, a major focus, but I think the results, solutions are where we really deliver, and that’s where I think we work with the president best.

Costa:              Couple minutes left.  Who inside of this administration is really the point person on economic policy?  Sometimes it’s an open question for us reporters.  Is it Secretary Mnuchin, Larry Kudlow, Kevin Hassett—who really is the driving force beyond the president?

Brady:             So the answer is yes.  [LAUGHTER] I think on those—look, they’ve got a lot of talent over there and Secretary Mnuchin did a remarkable job on tax reform and continues to as we’re working through a number of these trade issues.  Kevin Hassett has been a long-time thought leader on the economy that many of us, Republicans and conservatives, have always looked to for solutions there.  Larry Kudlow as well, in a major way.  And so I think the president’s got some very key economic minds and leaders around him, and we work very closely.  I love working with them.

Costa:              Final question about you personally.  This is an insider question, but I’ve covered Capitol Hill for a long time, and—the leadership race.  Any consideration at all to jumping in the leadership race at some level in the coming months?

Brady:             No.  [LAUGHTER] If I do, I’ll schedule it for the fourth of never.  [LAUGHTER] Yeah.  So look, we have—you know, I’m hopeful our leadership—one, I’m hopeful we continue to lead as a majority.  I think Kevin McCarthy deserves to move up, Steve Scalise behind him, and I hope the whole leadership team, frankly, is able to advance as well.  They’re a great team.

Costa:              Who’s your pick for whip?

Brady:             So in the majority?  Who’s announced?

Costa:              I’m not sure.  I’m asking you.  [LAUGHTER]

Brady:             Okay, so we’ll let those announce—the good news is, in the House, the talent pool is rich.  So we’re blessed.  [LAUGHTER]

Costa:              You could always say Frank Underwood, right?  [LAUGHTER] He was the whip in House of Cards.  Anyway, we really appreciate your time, Chairman Kevin Brady of the House Ways and Means Committee.  Really appreciate it.  Thank you very much.

Brady:             Thanks, Bob.

Costa:              And if you want to watch video clips from today’s program or hear about upcoming programs, please visit WashingtonPostLive.com.  And thanks to everyone here in the audience and those who joined us online.  Thank you, Chairman.

Brady:             Thank you, sir.