Tax Reform ‘Ripple Effect’ Will Boost Economy, Conway Says

Published March 7, 2018

Speaking at the Conservative Political Action Conference, White House Special Advisor Kellyanne Conway said the tax reform package passed by congressional Republicans and signed into law by President Donald Trump will increase business investment.

The new law, signed by President Donald Trump on December 22, 2017, reduced most individual income tax rates, permanently cut the corporate income tax from 35 percent to 21 percent, ended the practice of double-taxing American businesses’ profits earned in other countries, and cut overall taxes by an estimated $1.5 trillion.

“One thing we haven’t talked about yet, because it is fairly new, is what the capital investment from these companies is going to mean to your communities,” Conway said during her February speech. “You are looking at about $482 billion in promised capital investment, … so that’s about $182 billion, as I see it in our paperwork, of new investment projects that have been committed. So that is going to have a ripple effect across the economy.”

‘Higher Production’ Forecast

Gary Wolfram, a professor of economics and public policy at Hillsdale College and a policy advisor for The Heartland Institute, which publishes Budget & Tax News, says the corporate tax reforms will benefit workers and business owners.

“What we don’t observe is that the reduction in the corporate income tax is going to result in higher production in the United States,” Wolfram said. “Our companies are going to be more competitive internationally. There will be a greater incentive to locate factories in the United States and a higher demand for labor and increased wages.”

Investment Effects

Alan Viard, a resident scholar at the American Enterprise Institute, says corporate tax reform will encourage business owners to invest more money in the economy.

“The basic logic is that the corporate tax rate cut is the key here,” Viard said. “The corporate tax cut will encourage additional investment by corporations. The reason is because they will be getting a higher after-tax return on those investments.”

Wolfram says further increases in stock prices, which affect pension plans held by government workers and others, will be a likely outcome of the law.

“In fact, a policeman from Columbus, Ohio that is expecting a defined benefit from the state of Ohio or from the city of Columbus owns stock indirectly, through their pension plan,” Wolfram said. “Their pension is more likely to be met because of this reduction in the corporate income tax.”

Expects Wage Growth

As corporate tax reform increases the amount of capital invested in the economy, worker productivity and wages will also increase, Viard says.

“When you have more capital in the U.S., workers become more productive,” Viard said. “Having more capital makes workers more productive, and that means workers’ wages rise. Because they’re more productive, they’re more valuable to employers, businesses will start competing against each other and try to attract workers, and they will bid against each other to try to hire workers, forcing them to pay higher wages.”