Gary Cohn left his position as president of Goldman Sachs shortly after President Trump’s inauguration to take a job with the White House. He now serves as director of the National Economic Council, meaning that he’s Trump’s top adviser on economic issues. As part of that job, he sat down with CNBC’s John Harwood to explain the administration’s goals for overhauling the country’s tax system.
It was an interesting explanation.
Cohn is well aware by now (after some initial confusion) that the anticipated benefits of the proposal are heavily stacked toward the richest Americans. The Tax Policy Center estimates that about a quarter of the benefits of the tax cuts would be seen by the bottom 80 percent of the American economy — and another quarter of the benefits would be seen by the top 0.1 percent. When Harwood noted this discrepancy, Cohn blithely replied, “I don’t believe that we’ve set out to create a tax cut for the wealthy. If someone’s getting a tax cut, I’m not upset that they’re getting a tax cut. I’m really not upset.”
So what is the plan of the tax proposal then? According to Cohn, what the tax plan is “really aimed at doing is creating wage growth.”
“We have not had wage growth in this country,” Cohn said. “So, we’ve got a lot of Americans finding work, but they’re finding work at stagnant wages. Really to continue going on with this recovery, this long recovery, is we have to find a way to really drive wage growth.”
That point is broadly true. Wage growth has been relatively flat for decades, but after the recession hovered around 2 percent, as data from the Economic Policy Institute shows. Had wages grown at 3.5 percent after the recession — the pace wage growth saw before the recession — hourly earnings would be about 12 percent higher.
What Cohn doesn’t say, though, is how wages would increase under the administration’s plan.
They’ve made the case for it happening in the past, focusing on a study from the Council of Economic Advisers that showed reducing corporate tax rates would mean that average household incomes would increase at least $4,000 a year. That’s not an increase of $4,000 per household, as we’ve pointed out, but an increase in the national average. Meaning that the very high incomes that drive that average upward (the average U.S. household income is about $83,000; the median is about $59,000) would see much more of the benefit — which, of course, we always knew.
That is, if there is the benefit that the study purports. It’s an estimate based on how much wages drop when corporate taxes go up, with the assumption that, when those taxes are cut, wages will go up. This is a contested argument.
This isn’t the case Cohn makes, incidentally. Instead, he argues that the benefits will come from businesses repatriating earnings and reinvesting in the United States, which will spur new jobs and new wage growth. Cohn even embraces the term “trickle down” to describe that idea, that making things easier for business and the wealthy will trickle down to American workers.
It’s worth noting that one of the reasons that wages haven’t increased substantially is that workers are not receiving as large a share of corporate profits as they once did. From the late 1970s to the early 2000s, workers received somewhere around 80 percent of corporate income, within a range of about five points. From 2010 on, it has hovered around 75 percent.
The implication from that chart is that there’s a flaw in relying on money to trickle down to workers: Sometimes, some companies and corporate leaders would rather keep that income for themselves or for other purposes. Regardless, Cohn expresses confidence that this plan is both aimed at wage growth and will see that as a result.
Harwood pressed Cohn on the benefits of repatriating money — that is, lowering taxes on money earned overseas to encourage bringing it back to the United States. The last time there was a temporary tax cut aimed at bringing profits back, companies often used it to buy back their own stock. Cohn’s response was that this was fine, since “people . . . get those dividends, or they get those capital gains, they’re probably investors. What are they going to do? They’re going to go reinvest that money back in the market.”
Cohn did not suggest that they would use that money to directly boost wages.
The idea that the money would be reinvested in the market actually looped back to a question Harwood raised at the outset. Doesn’t the continuing strength of the stock markets undercut the idea that the economy needs a goose? That was the question to which Cohn offered his response that the goal of the tax plan was to drive wage growth.
Cohn also told Harwood that one of the principles driving Trump’s proposal — which, he insisted in response to critical questions from Harwood, wasn’t yet finalized — was “to deliver middle-class tax cuts to the hard-working families in this country.” The Tax Policy Center estimated in its analysis of the proposal that the bottom 20 percent of American taxpayers would see a cut of about $10 in their tax bill by 2027 — basically no difference. The middle fifth would save $320, on average, a savings of 0.4 percent. The top 1 percent would save $52,780 — a 1.5 percent cut.
As Cohn said, he’s not really upset about that.