Wednesday 17 October 2018

Trump advisers say corporate tax cut could add 5pc to GDP

US President Donald Trump, escorted by Senate Majority Leader Mitch McConnell, on Capitol Hill to push for his tax-reform agenda Photo: AP
US President Donald Trump, escorted by Senate Majority Leader Mitch McConnell, on Capitol Hill to push for his tax-reform agenda Photo: AP

Toluse Olorunnipa

Cutting the US corporate tax rate to 20pc would speed up economic growth enough to eventually make the US economy 3pc to 5pc larger than it otherwise would be, according to an analysis produced by US President Donald Trump's White House.

The analysis, released on Friday by Trump's Council of Economic Advisers, also repeats the panel's finding that the corporate tax cut would increase average household income by at least $4,000. Other economists have questioned that claim.

Kevin Hassett, the chairman of the CEA, said last Friday that some models show that it would take three to five years for the increase in gross domestic product to take place. Other models show it could take twice that long, he said.

"Firms are locating their new factories and their machines over there in Ireland and in other countries rather than creating jobs here," Hassett said. "If we want to keep this recovery going then what we need to do is just get capital deepening to increase productivity, increase wages, and give us the economic growth that we need," Hassett added.

The paper combines the effects of cutting the corporate rate, which is now 35pc, with another proposal to allow companies to immediately write off the cost of certain capital investments. Under current law, such investments are written off over years through depreciation.

In combination, the corporate rate cut and the move toward so-called "full, immediate" expensing of equipment purchases would lower the cost of capital and "generate an expected additional long-run increase in GDP of 4.2pc" over the current forecast by the Congressional Budget Office, according to the analysis.

Bloomberg

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