Treasury Secretary Steven Mnuchin told Maria in September: “We have to create economic growth and that’s what this is all about.”13 In October the President’s Council of Economic Advisers released a short but important paper summarizing the voluminous research showing the connection between low corporate income tax rates and rising wages for workers.14 Thanks to the work conducted for years by Hassett, Mathur, and many others, the academic debate was no longer about whether heavy taxation of business holds down compensation for employees but about how much it hurts employees.
The October report compared the ten developed countries with the highest corporate income tax rates and the ten with the lowest. In 2016, workers in the high-tax locales eked out average wage gains of just half a percent. Meanwhile in the low-tax countries, wages surged by 4 percent.
“We’re going to give the American people a huge tax cut for Christmas,” said the president before a meeting of his cabinet on November 20, 2017. He added that “our tax plan will return trillions of dollars in wealth to our shores so that companies can invest in America again.”15
Overseas, there was some concern that Mr. Trump and tax reformers in Congress were about to do exactly that. The long-running Cantillon column in Dublin’s Irish Times newspaper noted that a U.S. House vote to cut taxes “is highly significant” and that most Republicans in America “are united behind reforming the corporate-tax system.” The column added: “This is unsettling for Ireland. Addressing the House this week, Paul Ryan—a proud Irish-American—cited the example of Johnson Controls, a company that has had roots in his home state of Wisconsin since the 1880s but is now based in Ireland. The new tax system will help make the United States ‘the most competitive place in the world,’ he said. Worrying words for Ireland.”16
Even the Irish were getting worried? This was the corporate taxation equivalent of the New England Patriots suddenly becoming concerned about the competitive threat posed by the Cleveland Browns. Ireland routinely has the fastest-growing economy in the eurozone, so you can imagine how Europe’s also-rans felt about the prospect of the U.S. economy suddenly becoming more competitive.
In fact, some Europeans had been urging us for years to get our house in order. An official with the Organisation for Economic Co-operation and Development, a Paris-based association of industrialized economies, coauthored a 2016 diagnosis of the U.S. problem: “The American tax and accounting system has trapped over $2 trillion of deferred taxable income as ‘permanently reinvested’ offshore. It encourages the acquisition of U.S. headquartered companies by foreign companies, and then allows foreign companies to strip taxable income from the U.S. activities. This system is bad for domestic job creation, penalizes the entire U.S. economy, and needs to be fixed urgently.”17
Trump was thinking the same thing. Negotiations with Republicans in Congress resulted in a plan to bring the U.S. tax rate down to 21 percent, not all the way to the 15 percent Trump had proposed. Still, it was significant enough for some Democrats to argue that the Trump tax reform would kill people.
You read that correctly. In December 2017, as the Trump tax plan approached a final vote in Congress, The Hill reported: “Rep. Nancy Pelosi (D-Calif.) hammered the Republicans’ tax-code overhaul Monday evening as a culture-shaking economic ‘armageddon’ that would haunt the working class for years to come.
“Flanked by other top Democrats in the Capitol, the minority leader blasted Republicans for championing a tax proposal she equated to ‘the end of the world.’ ”18
Were we all going to die? The prospect of a competitive U.S. tax system seemed to be triggering mass Beltway hysteria. Former Obama economic adviser Lawrence Summers was not predicting that the result of a House-Senate tax compromise would inspire a wrathful God to destroy all of humanity. But he did argue that at least some portion of humanity would indeed be annihilated by the pending legislation.
Summers wrote in the Washington Post: “I suggested… when it became clear that the tax bill would pass that ‘thousands would die.’ In light of my sharp criticism of other economists’ claims regarding the legislation, some have asked whether my statement is well grounded. I think it is, but this should be open to debate,” he graciously conceded.19
The Summers argument was that, since one provision of the bill repealed the Obamacare mandate to buy health insurance, many people would foolishly choose not to secure coverage and thereby hasten their own demise. Mr. Summers kept warning of a mass-casualty legislative event as the tax debate proceeded.
Perhaps Summers could have lightened up a little if he had simply reflected on his own work showing the value of growth economics. “Wealthier nations are healthier nations,” reported a 1996 study he coauthored in the Journal of Human Resources. The research found that life expectancy sharply increases and infant mortality sharply decreases along with gains in per capita income.20
It was hard to lighten the mood as Democrats chanted “Kill the bill, don’t kill us!” in the House of Representatives.21 But outside the august chamber many Americans were not just avoiding depression over the tax changes; they were eagerly making plans for an expanding economy. Even before Trump signed the historic reform on December 22, 2017, Americans had been getting wealthier as regulatory relief and the expectation of favorable tax reform sent stock prices rising along with business confidence. Companies from Broadcom to Boeing announced they would move overseas jobs back to the United States. American firms were holding nearly $3 trillion offshore and would soon have the opportunity to bring it back
