The Trump administration claimed its corporate tax cuts would translate into a $4,000 raise for the average household
In selling the large corporate tax cut to Congress and a skeptical American public, the Trump administration claimed that corporate tax cuts would ultimately translate into higher wages for workers. The tax cuts would trickle down to workers through a multistep process. First, slashing the corporate tax rate would increase corporations’ after-tax returns on investment, inducing them to massively boost spending on investments such as factories, equipment, and research and development. This investment boom would give the average worker more and better capital to work with, substantially increasing the overall productivity of U.S. workers. In other words, they would be able to produce more goods and services with every hour worked. And finally, U.S. workers would capture the benefits of their increased productivity by successfully bargaining for higher wages.
According to President Trump’s Council of Economic Advisers (CEA), this process would “in the medium term boost the average U.S. household income annually in current dollars by at least $4,000, conservatively.” CEA’s “optimistic” estimate of the average household’s raise was $9,000. Then-CEA Chairman Kevin Hassett claimed that it would take “three to five years” for these massive trickle-down effects to materialize. A number of critics noted that the Trump administration’s claims were unlikely to pan out, in part because they hinged on the same supply-side economics that decades of tax cuts for the wealthy have consistently discredited.