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Via Teleconference

11:37 A.M. EDT

MS. DITTO:  Good morning, everyone.  Thank you for joining the call this morning.  I will just walk you through a few ground rules.  We have Chairman Hassett here to give on-the-record comments.  And we’ll be briefing you on the administration’s plans for Tax Cuts Week.  We have — the President will be traveling, and we’ll be providing details on that trip later in the day.

And then we also are planning a White House Opportunity Zones Conference on Wednesday.  We’re going to provide a little information for that.  But before we do, we want to walk through some of Chairman Hassett’s assessments of the impacts of the Tax Cuts and Jobs Act reform, as well as to provide some Q&A time for you as you prepare your reporting for Tax Cuts Day.

Additionally, we have Treasury officials on the line to provide answers, on background, as needed.  But we do expect all questions to be directed at Chairman Hassett.  And his responses will be on the record.

The substance of this call is embargoed until the conclusion of the call.  With that, I’ll turn it over to Chairman Hassett.

CHAIRMAN HASSETT:  Oh, thanks.  And thanks to everybody for dialing in.

And, you know, as Tax Day approaches, it’s a good time to take a look at how the Tax Cuts and Jobs Act — TCJA, for the rest of the call — has impacted our economy in the 16 months since President Trump signed it into law.

You know, it’s really unusual for economic data to tell a clear story, especially this soon after Tax Cut, but in this case, they do.  The law is working exactly as proponents of TCJA predicted.

Prior to its passage, the United States had the highest statutory corporate income tax rate among advanced economies.  And this hurt both our nation’s citizens and communities.  Capital fled overseas, often via tax havens, depressing wages and driving away jobs.

It was not so long ago that the dominant theme and discussions of the U.S. economy was declining manufacturing, stagnant wages, and increasing income inequality.

Today, the U.S. is an attractive business location again,  and the resignation to decline is a thing of the past.

By lowering the cost of capital, the Tax Cuts and Jobs Act promoted capital formation in the U.S.  Real investment in plant and equipment by non-financial businesses was 8 percent in 2018,  and America’s workers, especially those at the bottom of the income distribution, are now reaping the benefits.

You know, the impact was immediate.  The first margin of adjustment to the positive tax shock was a sharp rise in business plans for hiring and increased wage compensation.

In the first quarter of 2018, (inaudible) in the first quarter, the percent of CEOs surveyed by the business roundtable reporting higher employment in the next six months surged 42 percent to 61 percent, almost double the average before the tax cuts were passed.

Small and independent businesses are also experiencing the positive impacts of TCJA.  By August 2018, the net share of these firms reporting plans to increase employment in the next three months set a new all-time record.  And in November 2018, the net share of independent businesses reporting plans to raise worker compensation in the next three months was the highest that we’ve seen, all the way back to 1989.

In September 2018, the net share of respondents reporting having actually raised worker compensation over the past three months hit a new all-time high.

The greatest achievement of this tax reform is, of course, the thing that we talked most about ex-ante: the stunning wage growth.

Increased capital formation and increased productivity — labor productivity growth in the business sector nearly has doubled from its pre-TCJA expansion average.  And these things lead to higher wages.

It’s no wonder then that real wages and compensation per household, a quarterly measure, increased $896 from the 4th quarter of 2017 to the 4th quarter of 2018.  Real average weekly earnings, a monthly measure, increased $771 on an annualized basis from December to January of 2019.

And meanwhile, real disposable income per household rose $2,307 from the 4th quarter of 2017 to the 4th quarter of 2018, reflecting both higher pre-tax income and lower tax liabilities.

But the story of wage growth doesn’t end there.  In fact, strong wage growth was observed across the earnings distribution, with wages up for the median full-time worker as well as those both higher and lower in the earnings distribution.

As of the 4th quarter of 2018, nominal weekly earnings growth during the four quarters following passage of the Tax Cuts and Jobs Act was fastest for the lowest wage workers, with wage growth for the bottom 10 percent of workers posting a whopping 6.5 percent gain.

Wage gains were also accompanied by increased hiring.  As of March 2019, private employers have added more than 3 million workers to their payrolls since TCJA was enacted.  That’s 206,000 per month.

Not only did private job openings reach all-time highs, but in March 2018, for the first time, on record, the number of private job openings exceeded the number of unemployed workers, a record that’s extended all the way into this year.

This is an especially remarkable record given that the current expansion was long in the tooth when the tax cuts passed.  Indeed, to put it in perspective, in 2016, the Congressional Budget Office projected that job creation in 2018 would be 58,000 workers per month — fully 165,000 workers per month lower than we actually experienced.  If you want to call it the difference between what CBO projected in 2016, and what actually happened in 2018 — the “the tax cut effect” — then you’d say the tax cuts created about 2 million more jobs.

Now, many opponents of this reform predicted that it would have no effect on growth.  With the positive effects so visible, though, the story now is that it’s just a “sugar high.”  But if anything, these tax cuts are like a high-protein meal, which is providing sustained, long-term nourishment for our economy.

In the first year, firms bought new equipment.  Now they’ve got machines and they’re hiring workers and turning them on.  And the growth that we’ve seen this year is really just the start of something that’s going to continue for many years, as you can see in the forecast of the economic report.

Now, as many of you know, going all the way back for many, many years in my career, one of my main focuses as an academic economist was thinking about how to make sure that the benefits of tax cuts don’t just benefit the wealthy, but benefit everybody, especially those most in need.

And as I mentioned just a minute ago, we were very heartened to see that wage growth at the bottom has skyrocketed at 6.5 percent.  But we’re also very much concerned with what’s going on in distressed communities where there’s not a lot of capital formation; there hasn’t been a lot of new factories.  And so, we’ve supported and we’re encouraged to see become law, as part of the tax bill, the feature of the tax bill called “Opportunity Zones,” where we basically give special tax benefits to investors who invest in these zones.

Now, there are basically about 35 million people who live in Opportunity Zones, which exist in every state, in five territories, and the District of Columbia.  And the average income for the median household in a typical Opportunity Zone is 37 percent below the median income for the state as a whole.  And so these really are truly distressed communities.

And I’d like to just close my remarks by saying that we’ve got lots of early evidence that the Opportunity Zones are working just the way we expected.

The most recent data from the Bureau of Labor Statistics shows that in the 2nd and 3rd quarter of 2018 — already in the 2nd and 3rd quarter of 2018, really — counties with a large presence of Zones had annualized wage growth of 8 percent.  Eight percent.  By comparison, wages were flat in the counties that could have been Zones but weren’t designated as such.  And so we think that that’s a nice, natural experiment for identifying the effect of the Zones.

Since the designation of the Zones, properties in Opportunity Zones have appreciated, according to Zillow data, by about 20 percent in value.  And that 20 percent increase in property values in the Opportunity Zones, which we see in the Zillow data, you know, is basically, again, a very, very important redistribution that reduces income inequality correctly measured, because nearly 50 percent of the residents of a typical (inaudible) own their home.

And so, to summarize, looking at the effects of the tax cuts, you know, it’s hard to find any bad news.  The wage growth is highest for those at the bottom.  GDP growth was 3 percent that we said it would be, and the Opportunity Zones are, sort of, an insurance policy that makes sure that the prosperity we’re creating is affecting the people who need it the most.

And, with that, I thank you for your attention.  And we can open up for questions.  Back to you, Operator.

Q    Good morning.  How much of the gross is adding to the deficit?  And how much of the tax cuts are paying for themselves?  This is Toby from EWTN.

CHAIRMAN HASSETT:  Oh, yeah.  Hey, Toby.  Thanks for the call.  You know, the tax cuts on the corporate side, the total score, according to the Joint Tax Committee, on a static basis was a smidgen less than $400 billion, if I remember correctly.


CHAIRMAN HASSETT:  330, as (inaudible) tells me.  And that $330 billion cost over 10 is if you look at their estimate of the corporate side plus the international provisions.

And it’s clear that most of the growth — the increase in growth last year, if you look at the data, underlying data, came out because of this sort of huge surge in capital spending on the corporate side.  Because capital spending under the new law is expensed, what that means is that, last year, corporate revenue was lower because — as a result of this new investment that’s being expensed.  But the extra revenue you get from having just one year of 1 percent higher GDP is enough to cover the corporate tax side.

On the individual side, there are a lot of provisions that are very important and have a big impact on welfare, but that they are less likely to pay for themselves.  I think on the corporate side, it’s clear that the tax cuts have already paid for themselves.  But on the individual side, features like the child tax credit — you know, that they have very important impacts on welfare, social welfare, but not necessarily the growth effect that you’d see on the corporate side.  And so it’s harder for those things to quickly give you optimism about 10-year revenue effects and so on.

But I can say that if you continue drawing 1 percent higher than people thought was possible for a decade, then you’ve got 10 percent more GDP.  If you look at GDP out in the 10th year, then that means that you’re going to have about $3 trillion more GDP in that year alone, and so therefore it’s very easy to conceive of scenarios where you end up with a lot more revenue than was projected before the tax cuts were passed.

With that, we’ll go to the next question.

Q    Hey, Kevin, Rick Newman from Yahoo Finance.  You have seen the polls undoubtedly showing the tax cut is unpopular.  Most people think that — (inaudible) that the tax cut law benefits businesses and the wealthy more than it benefits the middle class.  Is that just a messaging problem or some other problem?

CHAIRMAN HASSETT: You know, I think that, first, like the data that I just described to you, that, you know, it’s accurate.  And I think that if you look at most measures of sentiment, that they’re near historic highs.

And so as an economist, if you’re thinking about like what’s the sentiment that impacts the economic outlook, it’s things like the (inaudible) survey and the survey of consumer sentiment and small business sentiment and so on.  And all of those indicators suggest that you should have a very optimistic outlook for economic growth this year.

Now, if we go down into geeky things like “what do you think about taxes,” my guess is that — look, I just did my taxes; I’m grumpy about taxes.  And so I’m not a poll expert, but I don’t think that it affects my outlook that people wonder whether the taxes are as effective.  That data show they are.

So, again, if the tax cuts weren’t passed, then I think that our estimate is that GDP growth last year would’ve been about 1.9 percent.  If GDP growth last year was 1.9 percent, you wouldn’t see anywhere near the skyrocketing income growth that we’re seeing, especially for people at the bottom.  And the sentiment that matters would be way, way lower than it is, and I’m highly confident that’s true.  And so then, when you show me some poll that says “what do you think about the tax cuts,” I’m really not sure that, as an economist (inaudible).

SENIOR ADMINISTRATION OFFICIAL:  And, Kevin, if I could add.  You know, when you talk about polling — and we could have a whole separate call on polling of tax cuts — it’s interesting.  Because when you look at people’s sentiment toward the overall economy, it’s overwhelmingly positive.  The most recent (inaudible).

CHAIRMAN HASSETT:  And also President Trump’s handling of the economy, as well.

SENIOR ADMINISTRATION OFFICIAL:  Exactly.  And — sorry, guys, this is [senior administration official].  Feel free to just — kind of a background comment.  Fifty-eight percent in the GU Politics Battleground poll approved of the economy.  Harvard Harris has it at 57 percent.  And the most recent NBC poll has the economy approval at 58 percent.

So we view, as we always have, the entire economic policy of the President as having a positive impact.  So when you’re talking about tax cuts, we’re also talking about the regulatory reforms, the trade policy, and the overall impact is clearly being felt.  And as Kevin has suggested, the vast, vast majority of Americans are experiencing real direct benefits from tax reform.

So whether or not it shows up in a polling question on tax cuts versus people’s general view of the economy, I think it’s more important that people have strong, positive opinions of where the economy stands today, and particularly their place in it.

CHAIRMAN HASSETT:  Okay, yeah, thanks for adding that [senior administration official].

So next question, if there is one.

Q    Hey, this is Richard Rubin at the Wall Street Journal.  On Opportunity Zones, you referenced the wage growth numbers.  What’s the sort of logical story for that, given that what we’ve seen so far in Opportunity Zones is, as you mentioned, property purchases, fundraising from people with capital gains?  We haven’t — a lot of these investments, obviously, are long-tail — long-time investments.  So what logical connection is there between the zone designations and the wage increases that you’re talking about?

CHAIRMAN HASSETT:  Yeah, you’re right to point out that we were surprised at how quickly the wage numbers headed up.  We had some speculative reasons that we’ve been playing, but it’s something that we’re studying.

And I would say watch the CEA Twitter account, because as we get to the bottom of it, we’ll have more charts.  If you’ve seen, we’ve put up some Opportunity Zone charts; they characterize the data I just described.

But I think that, you know — I, just last week, visited an Opportunity Zone in Massachusetts, where — you know, stuff is really starting to happen.  People are moving in, they’re making plans for what to do with abandoned buildings, and so on.

And so, you know, it could be that what’s happened is that — again, this is speculative right now — that because people know — like if you look at the Zillow data, they’re buying the properties and stuff — that they know that want to go in there and expand, then they’re sending people into the Zones to start sort of making the plans and setting the ground work for that, and that those people who are going into the Zones are relatively high-skilled people compared to the people that were already there.  And that’s why it’s showing up already so quickly in the wage data.

But you’re right that the link that economists would expect is that people would locate capital in the Zones, the capital would increase the productivity of the people who live (inaudible), and then then their wages would go up.  And that would be something that you’d expect to see over — you know, over a number of years.

And the fact that the wages are going up already is, you know, a positive sign that there must be something really positive going on.  But it’s also, as you rightly suggest, is sort of quicker than one would have expected if it was purely a capital (inaudible) story.

I got time for a couple more questions, as Jessica just informed me, if there are any more.

Q    Hi, Kevin, it’s Eamon Javers over at CNBC.  Thanks for doing the call.  So dating back to the midterms, the President talked about additional tax cuts, and White House officials at various points have talked about another push for more tax cuts.  Can you sort of lay that to rest at this point?  I mean, is the administration going to be pushing for more tax cutting between now and the presidential, or is this administration done cutting taxes in the first term at this point?

CHAIRMAN HASSETT:  You know, that’s a strategic — a political and strategic question that is, you know, best left to people who play in that space.  You know, I’m just a lowly economist.

But I can tell you that — I would just say that given the strength of the evidence that the — making the U.S. a more attractive place for capital has drawn a heck of lot of capital back here, created an enormous amount of capital spending, and driven to, you know, really skyrocketing wage growth for especially blue-collar workers — should make people of all parties more willing to do it again.  And it’s definitely something I would advise them to do.

I think we have time for one last question, sir.  Okay.

Q    Hi, Lydia DePillis, CNN Business.  Thanks for doing this.  So, Dr. Hassett, what would you say to folks who say that those other factors that are possibly responsible for the surge in business investment and wages on the low end, such as oil prices being really high — which draws a lot of people to the shale fields — as well as a long, unprecedented streak of job creation, which created a set labor market, driving up wages as well as minimum wage hikes.  I mean, are those things also not largely responsible for what we’ve seen last year?

CHAIRMAN HASSETT:  So, sure — yeah, it’s a really good question.  And there are a lot of layers to it.  And, in fact, there are so many layers that it could be that we should set up a call so that we can dig deeper into some of them.  The minimum wage story doesn’t hold up.  It’s something that we’ve looked into that — in fact, there were fewer minimum wage hikes last year than in the previous few years.

And also, don’t forget that disemployment effects — even if there were minimum wage effect, you know, minimum has usually caused some disemployment effects, if you look at the literature.  And if you’ve a booming economy and see people lift minimum wages and then people don’t lose their jobs, then you get wage growth.  But it’s because you have a booming economy that makes it so that people don’t lose their jobs.

In terms of whether there are other factors and so on, I would point you to the Economic Report of the President, which, of course, I’ve got to pitch my book, right?  But if you go to page 35, I think, if I remember correctly– or about there — the first chapter is on the “Tax Cuts and Jobs Act: What Economic Models Predicted and What Happened.”

And the thing that I think is the most striking — and I’m going to actually flip to it — if you turn to page 50 — I know you probably can’t do it right now — that we summarize, let’s see, one, two, three, four, five, six, seven, eight, nine — so ten papers and top peer-reviewed journals that allow one to model that likely impact on economic growth in 2018 of the Tax Cuts and Jobs Act.

And the average growth effect from the 10 papers — you know, and they’re in the very top journals, like American Economic Review and so on — was that the TCJA should’ve increased growth relative to trend by 1.3 percent.  And at the bottom of the chart, we show you that there are two different ways to estimate what the trend growth should’ve been.  And for the ones — the trend growth method that we like the best, then growth was above trend by 1.4 percent.

And so the average that the economic literature predicted the tax cut effect would be 1.3 percent, the actual data in hand said that the tax cut effect was 1.4 percent.  That’s pretty good, right?  I mean, that’s pretty spot on.

And so I think that, as economic scientists, or social scientists, what we do is we make ex-ante predictions and then we watch the data.  And if the data are consistent with our predictions, then it confirms our beliefs and our models.  And if the data are inconsistent with our predictions, then we wonder what’s wrong with our models.  And we’re not spending much time wondering what’s wrong with our models or what the other explanations are, given that the effect that we see in the data was precisely what the models predicted.

With that, I thank you all for your attention.  I’m going to hand it back to Jessica to close the call.  But also, if any of you have follow-up questions, it’s my favorite time, academically, of the year — tax season — and I’m happy to talk about anything you want in terms of what (inaudible) tax cuts.  And so we can set up a further conversation.

MS. DITTO:  Thank you so much, Chairman Hassett.  And thank you all for being on the call.  As I mentioned at the beginning of the call, the comments from Chairman Hassett and his answers to questions are on the record.  Everything is embargoed until the conclusion of this call.

I wanted to let you know about the event next week.  As I mentioned, the President will be traveling on Tax Cuts Day, and we will provide more information out of the press office about that visit later today.

Additionally, on Wednesday, the White House is hosting an Opportunity Zones conference with state, local, tribal, and community leaders to provide a lot of information and doing several seminars throughout the course of the day to really help provide guidance to these stakeholders as they work to take advantage of the Opportunity Zone efforts in their communities.

So we anticipate there will be a few hundred local leaders, 20 governors, senior staff, 25 state economic development directors, and several state budget directors, housing directors.  And Secretary Mnuchin and Secretary Carson will be participating in the event, as well as the President making remarks to address the group.

So we’re really looking forward to this opportunity to talk to leaders to make sure that they’re able to take advantage of this great opportunity and provide assistance as they work through the guidance and the questions that they may have, and to really talk about the innovation that they have going on in their communities, both urban and rural areas alike.

So, with that, we thank you for being on the call today.  As Chairman Hassett said, he’s available to answer questions on tax season, and obviously our colleagues at Treasury as well.  So thank you for your time.  And at this time, Moderator, we will conclude the call.


12:02 P.M. EDT