US Treasury Secretary Steven Mnuchin (R) and National Economic Director Gary Cohn (L) participate in a news conference to discuss the tax reform...
MICHAEL REYNOLDS

CEOs undermine the rationale behind the Republican tax-cut push

America’s business leaders have been on Trump administration officials’ minds lately. On Sunday, for example, Treasury Secretary Steve Mnuchin defended the Republican tax plan by boasting, “Lots of people, lots of CEOs, have had input into this.”

A few days earlier, Gary Cohn, Donald Trump’s top economic adviser, told CNBC’s John Harwood, “The most excited group out there are big CEOs, about our tax plan.”

Part of the problem with this is that, according to the plan’s Republican architects, the target audience for the plan are middle-class families, not “big CEOs.”

But the other part of the problem is that the claim may not even be accurate. The Washington Post reported yesterday:

President Trump’s top economic adviser, Gary Cohn, looked out from the stage at a sea of CEOs and top executives in the audience Tuesday for the Wall Street Journal’s CEO Council meeting. As Cohn sat comfortably onstage, a Journal editor asked the crowd to raise their hands if their company plans to invest more if the tax reform bill passes.

Very few hands went up.

Cohn looked surprised. “Why aren’t the other hands up?” he said.

If you watch a clip of the exchange, you’ll see when Cohn laughed a bit while asking the rhetorical question, perhaps because he was slightly embarrassed. The whole point behind Republicans slashing the corporate tax rate is the GOP’s assumption that it would spur massive capital investments, which would in turn boost the economy and create jobs.

But yesterday, a room full of business leaders at CEO Council meeting send a pretty clear signal: the Republican assumptions aren’t true. GOP policymakers are wrong, not just in general, but also about the key rationale behind their corporate tax policy.

What’s especially striking about this was the fact that the top economic voice in the White House found this surprising. Whether Trump World understands this or not, corporate profits are  already  high. The Republican plan is predicated on the idea that corporations would start rushing to make capital investments just as soon as they have more capital, but that’s absurd. They already have the money.

What’s more, as the Washington Post’s piece noted, a Bank of America-Merrill Lynch survey was conducted over the summer that asked over 300 executives at major U.S. corporations what they’d do if they received a tax boost. The article explained, “The No. 1 response? Pay down debt. The second most popular response was stock buybacks, where companies purchase some of their own shares to drive up the price. The third was mergers. Actual investments in new factories and more research were low on the list of plans for how to spend extra money.”

Gary Cohn asked yesterday, “Why aren’t the other hands up?” The better question is, why did Gary Cohn expect more hands to go up?

Tax Policy and Tax Reform

CEOs undermine the rationale behind the Republican tax-cut push