White House explains: Corporate tax cuts mean bigger paychecks

The White House’s chief economist released a paper Monday that seeks to explain why the Trump administration believes a big cut in the corporate tax rate could spur a dramatic increase in workers’ paychecks.

Average household income, the paper asserts, could rise by at least $4,000 a year if the 35% tax rate on American corporations is reduced to 20%, as the recently released Republican tax reform framework proposes.

The author of the paper — Kevin Hassett, who chairs President Trump’s Council of Economic Advisers — has spent years studying the relationship between corporate taxes and wages.

Hassett based his analysis on a review of academic literature and evidence observed in other countries that have lowered their corporate rates.

He contends that tax policy is a big reason why wages and productivity have been largely stagnant, even as corporate profits have soared. Hassett’s reasoning is central to the administration’s argument that its tax plan would help the middle class.

“America’s broken tax system creates incentives for companies to hold profits overseas,” Hassett said in a call with reporters.

Today, the U.S. corporate rate is the highest in the developed world. But American multinationals have to pay only U.S. tax on their overseas profits (minus whatever they’ve paid on them already to foreign governments) when they bring the money back home.

To avoid a big tax hit, many companies leave those profits abroad in lower-tax countries.

By slashing the U.S. rate, the theory goes, companies will have more incentive to invest money in the United States. And they will do so by making more capital investments — such as in machines — which can help boost productivity. That, in turn, can boost wages, Hassett argues.

Hassett’s study analyzes only the effect on wages of lowering the corporate rate. He said wages could increase even faster if a tax cut is coupled with another proposal in the GOP framework to tax American multinationals’ existing overseas profits at a one-time low rate.

“You could get a pretty good kick right away,” he said.

Sounds great. So what’s the catch?

Outside experts haven’t had a chance to review Hassett’s paper yet.

But when asked last week about comments Hassett made in a recent speech that implied the average household might see a raise of $4,000 over eight years, Mark Mazur, head of the Tax Policy Center, said he was skeptical.

Here’s why: Yes, many economists and tax policy experts agree that a lower U.S. corporate rate would attract more money to the United States, as the White House asserts. But there is far less consensus on how companies would use that money and on how much tax savings would directly benefit workers.

For instance, companies may opt to use a significant part of their tax savings to increase dividends or buy back shares instead of making new investments that can create jobs and raise wages.

Or they may bring back less money than anticipated because they want to keep it in an even lower tax country, or because they actually want to use the money in those countries.

And a big, unresolved question among economists remains: How much of the corporate tax is actually borne by workers through lower wages and fewer jobs? Or conversely, how much will workers gain if the corporate tax rate falls?

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White House explains: Corporate tax cuts mean bigger paychecks

The White House’s chief economist released a paper Monday that seeks to explain why the Trump administration believes a big cut in the corporate tax rate could spur a dramatic increase in workers’ paychecks.

Average household income, the paper asserts, could rise by at least $4,000 a year if the 35% tax rate on American corporations is reduced to 20%, as the recently released Republican tax reform framework proposes.

The author of the paper — Kevin Hassett, who chairs President Trump’s Council of Economic Advisers — has spent years studying the relationship between corporate taxes and wages.

Hassett based his analysis on a review of academic literature and evidence observed in other countries that have lowered their corporate rates.

He contends that tax policy is a big reason why wages and productivity have been largely stagnant, even as corporate profits have soared. Hassett’s reasoning is central to the administration’s argument that its tax plan would help the middle class.

“America’s broken tax system creates incentives for companies to hold profits overseas,” Hassett said in a call with reporters.

Today, the U.S. corporate rate is the highest in the developed world. But American multinationals have to pay only U.S. tax on their overseas profits (minus whatever they’ve paid on them already to foreign governments) when they bring the money back home.

To avoid a big tax hit, many companies leave those profits abroad in lower-tax countries.

By slashing the U.S. rate, the theory goes, companies will have more incentive to invest money in the United States. And they will do so by making more capital investments — such as in machines — which can help boost productivity. That, in turn, can boost wages, Hassett argues.

Hassett’s study analyzes only the effect on wages of lowering the corporate rate. He said wages could increase even faster if a tax cut is coupled with another proposal in the GOP framework to tax American multinationals’ existing overseas profits at a one-time low rate.

“You could get a pretty good kick right away,” he said.

Sounds great. So what’s the catch?

Outside experts haven’t had a chance to review Hassett’s paper yet.

But when asked last week about comments Hassett made in a recent speech that implied the average household might see a raise of $4,000 over eight years, Mark Mazur, head of the Tax Policy Center, said he was skeptical.

Here’s why: Yes, many economists and tax policy experts agree that a lower U.S. corporate rate would attract more money to the United States, as the White House asserts. But there is far less consensus on how companies would use that money and on how much tax savings would directly benefit workers.

For instance, companies may opt to use a significant part of their tax savings to increase dividends or buy back shares instead of making new investments that can create jobs and raise wages.

Or they may bring back less money than anticipated because they want to keep it in an even lower tax country, or because they actually want to use the money in those countries.

And a big, unresolved question among economists remains: How much of the corporate tax is actually borne by workers through lower wages and fewer jobs? Or conversely, how much will workers gain if the corporate tax rate falls?

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Kobe Steel scandal: What we know so far

It’s the latest big scandal to rock corporate Japan.

Kobe Steel, a century-old industrial giant, has admitted to falsifying data on products sold to top customers like Boeing and Toyota.

It says as many as 500 companies could be affected, including manufacturers of Japan’s famous bullet trains.

Here’s the lowdown on the crisis that’s rippling through major industries around the globe:

What happened?

Essentially, Kobe employees faked reports to make it look as though products met the specifications requested by customers when in fact they didn’t.

The scandal initially concerned copper and aluminum parts, but has spread to steel products, too. It has raised doubts about thousands of tons of material shipped over a period of more than 10 years.

For the aluminum and copper parts, false data was given about their strength and durability.

Which industries?

Kobe steel sells metal to all kinds of different businesses. Some of the main industries to which it has supplied the suspect products include aviation, automobiles, railways and nuclear power.

Who’s affected?

In the aerospace industry, Boeing and Japan’s Mitsubishi both used Kobe parts made with falsified data in their aircraft. But the two companies insisted they don’t believe the parts present a safety concern.

Japanese automakers Toyota, Honda and Nissan acknowledged they had used affected Kobe materials but were still assessing the consequences for their vehicles.

Ford has said it found aluminum parts in the hood of its Mondeo model in China, but can’t confirm if they were sourced during the affected period.

Other big companies — including GM, Mazda and plane-maker Airbus — said they haven’t found any suspect parts so far but are combing their supply chains regardless.

What happens next?

The future of Kobe Steel is unclear, but it looks bleak right now. Its stock has nosedived 40% since the revelations first emerged.

Some analysts have warned the company could go bust, and others have suggested it could be broken up and sold off to rivals.

Kobe hasn’t put a number on the likely size of the financial hit from the scandal. The firm’s CEO has said it will bear the costs of any product recalls by its customers. He is also leading an internal probe into what happened.

Doesn’t this sound familiar?

Japan Inc has amassed a growing pile of embarrassing scandals in recent years.

They include Takata’s deadly airbags, Mitsubishi Motors’ fudged fuel-efficiency tests and Toshiba’s damaging debacles over its accounting and nuclear power business.

— Sherisse Pham, Yoko Wakatsuki in Tokyo, and Jon Ostrower in Seattle contributed to this article.

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Kobe Steel scandal: What we know so far

It’s the latest big scandal to rock corporate Japan.

Kobe Steel, a century-old industrial giant, has admitted to falsifying data on products sold to top customers like Boeing and Toyota.

It says as many as 500 companies could be affected, including manufacturers of Japan’s famous bullet trains.

Here’s the lowdown on the crisis that’s rippling through major industries around the globe:

What happened?

Essentially, Kobe employees faked reports to make it look as though products met the specifications requested by customers when in fact they didn’t.

The scandal initially concerned copper and aluminum parts, but has spread to steel products, too. It has raised doubts about thousands of tons of material shipped over a period of more than 10 years.

For the aluminum and copper parts, false data was given about their strength and durability.

Which industries?

Kobe steel sells metal to all kinds of different businesses. Some of the main industries to which it has supplied the suspect products include aviation, automobiles, railways and nuclear power.

Who’s affected?

In the aerospace industry, Boeing and Japan’s Mitsubishi both used Kobe parts made with falsified data in their aircraft. But the two companies insisted they don’t believe the parts present a safety concern.

Japanese automakers Toyota, Honda and Nissan acknowledged they had used affected Kobe materials but were still assessing the consequences for their vehicles.

Ford has said it found aluminum parts in the hood of its Mondeo model in China, but can’t confirm if they were sourced during the affected period.

Other big companies — including GM, Mazda and plane-maker Airbus — said they haven’t found any suspect parts so far but are combing their supply chains regardless.

What happens next?

The future of Kobe Steel is unclear, but it looks bleak right now. Its stock has nosedived 40% since the revelations first emerged.

Some analysts have warned the company could go bust, and others have suggested it could be broken up and sold off to rivals.

Kobe hasn’t put a number on the likely size of the financial hit from the scandal. The firm’s CEO has said it will bear the costs of any product recalls by its customers. He is also leading an internal probe into what happened.

Doesn’t this sound familiar?

Japan Inc has amassed a growing pile of embarrassing scandals in recent years.

They include Takata’s deadly airbags, Mitsubishi Motors’ fudged fuel-efficiency tests and Toshiba’s damaging debacles over its accounting and nuclear power business.

— Sherisse Pham, Yoko Wakatsuki in Tokyo, and Jon Ostrower in Seattle contributed to this article.

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Drone hits passenger plane in Canada

A drone crashed into a commercial airplane in Canada, the first time such an incident has occurred in the country, the government said Sunday.

A plane operated by charter airline Skyjet was approaching Quebec City’s Jean Lesage International Airport on Thursday when a drone struck one of its wings, according to local media reports. There were six passengers and two crew members aboard the plane.

“I am extremely relieved that the aircraft only sustained minor damage and was able to land safely,” Canadian Transport Minister Marc Garneau said in a statement Sunday.

Based in Quebec, Skyjet operates a fleet of small twin-engine aircraft, according to its website. The company didn’t immediately respond to a request for comment outside regular business hours.

The rapidly growing use of drones by consumers around the world has led to an upswing in the number of encounters between the remote-controlled devices and planes. Transportation authorities have been trying to come up with rules to avoid a disaster.

Earlier this year, Canada announced safety measures making it illegal to fly recreational drones within 5.5 kilometers (3.5 miles) of an airport, and restricting the height of a drone’s flight to 90 meters (about 300 feet). Punishment for breaking the regulations can include a fine of as much as 25,000 Canadian dollars ($20,000) and a prison sentence.

The drone that struck the passenger plane last week was following the 3.5-mile restriction, but was flying much higher than legally allowed, hovering some 450 meters (1,500 feet) above the ground.

“If a drone were to hit the window of a cockpit and incapacitate the pilot, or were to damage in anyway an engine, this could have catastrophic results,” Garneau said at a news conference.

A commercial drone flew dangerously close to a passenger plane in China earlier this year, prompting authorities to detain the drone’s pilot. In the U.K., the pilot of a British Airways flight said a drone struck the front of the aircraft during its approach to Heathrow airport last year.

Dubai’s airport last year said it was carrying out trials of a “drone hunter” — a remote-controlled aircraft to detect drones that are in danger of straying into the airport’s space — after unauthorized drone activity forced the airport, the third busiest in the world, to shut down several times.

In Canada, officials say that of the roughly 1,600 drone incidents reported to authorities so far this year, 131 posed a threat to aviation safety.

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