Just one month into his new job, Hassett has rushed into the debate about the economic impact of tax cuts with assertions borne from decades of research in tax policy. He says the White House’s tax cut plan would grow the economy and wages much more than other economists believe, and he’s ready to push back on what he thinks are erroneous forecasts.
“My job is to provide objective analysis to the president — and really to the public — about important economic policy issues,” Hassett said in an interview. This will include pushing back when he thinks outside economists are mischaracterizing a White House proposal. He said he will provide Trump and the public with a range of outcomes from different economic proposals while also trying to “guide people into thinking what the right answer is.”
It hasn’t taken long for critics of Hassett’s new role to pounce. Former treasury secretary Lawrence Summers on Thursday called some of Hassett’s assertions about wage growth tied to corporate tax cuts “ludicrous.”
“I think it’s an absurdity,” Summers said on CNBC.
Hassett brings an articulate, academic voice to a White House that had often resorted to bumper-sticker policymaking devoid of research and data.
His performance in the past two weeks suggests he could become a central figure in the tax cut push, as he’s working to — perhaps single-handedly — parry other economists who argue that Trump’s tax cut plan will primarily benefit the wealthy and do little for the middle class.
“Our job is to present the results from a variety of models, not to say — which would be just incorrect — ‘this is the one model that solved all the world’s economic problems,'” Hassett said.
On Wednesday, Hassett said tax cuts of the size envisaged by the White House would result in an economic boom that sends wages soaring across the economy.
“The truth is a tax cut like this very conservatively will increase the median wage about $4,000 a year,” Hassett said Wednesday at an event at the Newseum in Washington, referring to a change that would allow multinational companies to bring earnings back to the United States. He said that over time, the tax cuts could amount to median wage increases of between $10,000 and $20,000 for U.S. workers.
Hassett described these findings as “back-of-the-envelope,” and the White House is moving to publish more complete models to show how he reaches his conclusions. Asked about criticism from Summers and others, Hassett said he would try not to take any of it personally, adding that no economic model is perfect. But he also suggested he wouldn’t back down in the face of criticism, regardless of who delivered it.
“I’m completely open to criticism, and I understand as a sort-of public figure now that there are going to be times when people say pretty harsh things about me,” he said. “My job is to look for content in even the meaner pieces to make sure that if I do something wrong, I will correct it.”
He has clearly already found a receptive audience in the White House. Trump cited the $4,000 figure during a speech in Pennsylvania on Wednesday in a sign the White House’s tax message could begin taking on a statistical foundation.
Hassett’s assertion is that cutting taxes on businesses has a much larger impact on wage growth than many economists believe and that wages will get a jolt when the corporate tax rate is cut.
But Hassett’s views are much different than other economists and even Wall Street firms, who have said the impact could be minimal while adding more than a trillion dollars to the government’s debt.
“I have no idea what the hell he’s talking about,” said Mark Mazur, director of the Tax Policy Center who was a top tax official at the Internal Revenue Service and the Treasury Department, after Hassett offered a precise estimate of what would happen to wages if companies bring earnings back from overseas. The Tax Policy Center has found that the outline of Trump’s tax plan would provide a disproportionately large benefit to the wealthiest Americans, something that Hassett has said is unfair because details of the tax changes are still being worked out.
Mazur oversaw a team at the Treasury Department during the Obama administration that authored a paper finding that a corporate tax cut would have some impact on wage growth but nowhere near what Hassett has argued. That paper was recently removed from the Treasury Department’s website, as Trump administration officials said it did not reflect their current thinking.
Hassett can be folksy and friendly but also pivot sharply from being self-deprecating to direct and pointed.
On Wednesday, he deflected questions about how the White House should negotiate the tax cut plan, saying he “really doesn’t have any authority over anything,” but he also said that there is a hyperpartisanship in politics that makes negotiations more bitter.
“That’s what is wrong with Washington,” he said. “That’s why people think of us as a swamp.”
A number of liberal economists cheered when Hassett was picked to run the Council of Economic Advisers, feeling that he had the academic backbone to help prevent the Trump White House from pursuing ideas too far outside the mainstream. Several of them in interviews said they are watching him closely to see how he settled into the job.
He’s not a political novice, having advised the presidential campaigns of Sen. John McCain (R-Ariz.) and former Massachusetts governor Mitt Romney, but he also worked with Democrats on Capitol Hill on taxes and other issues when he was at the American Enterprise Institute, which is why a majority of Democrats voted to confirm him to his position.
“Kevin is a very down-to-earth guy,” said Lanhee Chen, who worked with Hassett on the Romney campaign. “I don’t know if I’ve ever talked to anyone who hasn’t gotten along with Kevin, and that’s on the right and left.”
Up until Hassett joined the White House, members of its loosely organized economics team were often at odds with each other, with National Economic Council Director Gary Cohn working to see whether deals could be cut with Congress and Peter Navarro pushing the White House to hold a tough line on trade policy.
Meanwhile, Commerce Secretary Wilbur Ross began the administration with outsize influence, which has since diminished with the elevation of Robert E. Lighthizer, the U.S. trade representative. Treasury Secretary Steven Mnuchin has played a lead role in tax policy and international sanctions.
Their portfolios often overlap more than their viewpoints, which caused tensions for months. But many of the economic proposals that have come from the White House so far have not been backed up with economic research or models, instead relying on corporate talking points or traditional GOP arguments about spending cuts and taxes.
Senior White House officials plan to lean on Hassett’s research as they look to counter expected forecasts from the Congressional Budget Office and the Joint Committee on Taxation that tax cuts have only modest benefits when it comes to wages and economic growth.
“I see him as the perfect person in that job in this moment,” said Douglas Holtz-Eakin, another conservative economist who has served as the CBO’s director.
Hassett has told people that his interest in academics grew from his childhood in western Massachusetts, where he saw the economic effect of shuttered mills that could devastate local communities. During his month at the Council of Economic Advisers, he has opened up staff meetings to everyone — not just senior advisers — and asked even interns to present ideas.
He has also invited past White House and Federal Reserve economists to speak during brown-bag lunches. On Wednesday, they heard from Alan Greenspan.
His critics have seized on some of Hassett’s past forecasts that didn’t materialize. He co-wrote a book in November 2000 entitled “Dow 36,000: The New Strategy for Profiting From the Coming Rise in the Stock Market.” The book was not prescient, as the stock market soon entered a giant correction.
“One critic of mine once looked at that book and called it a youthful indiscretion,” Hassett said during his Senate confirmation hearing in June. “And I think as youthful indiscretions go, it wasn’t such a bad one.”
Similarly, he co-signed a letter to then-Fed Chairman Ben Bernanke in November 2010 that argued that the central bank’s current policy could lead to “currency debasement and inflation.” Neither debasement nor large-scale inflation followed.
Even though he’s well known for his work on tax policy, Hassett is also known for straying into any area that interests him. In 2015, he co-wrote a paper that argued New England Patriots quarterback Tom Brady did not improperly deflate footballs in a previous playoff game (Hassett is an unabashed Patriots fan, but the paper included complex mathematical formulas to make the case).
Still, it’s tax policy that Hassett is often turned to for expertise, and it is where he seems to have made an immediate impact within the White House. He has entered a White House that has stopped short of advancing granular economic research, creating an opening for critics who have said the Trump administration hasn’t thoroughly vetted ideas.
Hassett believes wage growth has been too slow, in part because it has become too detached from corporate earnings. He argues that companies have been allowed to store profits overseas and strip benefits away from workers.
The White House’s tax cut plan, Hassett believes, will allow — and perhaps even force — companies to bring that money back to the United States, which he says will boost wages.
“This is a subject on which Kevin has done research himself,” said Alan Auerbach, director of the Robert D. Burch Center for Tax Policy and Public Finance at the University of California, who served as Hassett’s dissertation adviser.
“His paper has found larger effects on wages than some other papers have found. But I think the criticisms of his analysis have been more that the results seem too high, not that there’s any methodological problem with what he’s done.”
Auerbach, considered one of the top U.S. scholars on the impact of tax policy changes, has co-authored more than 10 papers with Hassett.
Hassett joins an economic team at the White House that is noted for its wealth and Wall Street ties, while he is known for past work at the American Enterprise Institute and the Federal Reserve. But he is also known for having an engaging friendliness that many economists lack, which can be disarming its delivery.
“There are approximately 6.7 billion people on earth,” he wrote in the Washington Post in February 2009. “But finding your perfect mate is not as simple as evaluating the attractiveness of each world citizen one by one. Their feelings matter, too. A relationship worthy of song only happens when you are the best possible match for your mate, and he is the best possible match for you.”
Hassett said economics is full of unknowns, and he has instructed staff not to give his past work any more weight than his peers when looking for answers or research.
“The correct thing to do is to look at all of them and then to form a rational belief based on the relative success over time of the different sorts of models,” he said.