This article first appeared in Larry Summers’ blog.
Kevin Hassett, chair of the Council of Economic Advisers, accuses me of an ad-hominem attack against his economic analysis of the Trump administration’s tax plan. I am proudly guilty of asserting that it is some combination of dishonest, incompetent and absurd. TV does not provide space to spell out the reasons why, so I am happy to provide them here.
I believe strongly in civility in public policy debates, and before the Trump administration do not believe I have ever used words like dishonest in disagreeing with the policy analyses of other economists. Part of my rationale for speaking so strongly here is that Mr Hassett called into question the integrity of the Tax Policy Center, a group staffed by highly respected former civil servants, by calling their work “scientifically indefensible” and “fiction”.
Then, he invokes Art Okun as support for his spurious arguments. To paraphrase Lloyd Bentsen – I worked with Art Okun; I knew Art Okun; Art Okun was my friend. Kevin, you are no Art Okun.
As CEA chair, Okun stood for honest, objective economic analysis rooted in the professional consensus. In the last year of his life, he made clear how dubious he found the claims of supply-side economics. In contrast, Mr Hassett throws around the terms scientific and peer reviewed, yet there is no peer-reviewed support for his central claim that cutting the corporate tax rate from 35 per cent to 20 per cent would raise wages by $4,000 per worker.
The claim is absurd on the face of it. The cut in corporate tax rates from 35 per cent to 20 will cost slightly less than $200 billion a year. There is a legitimate debate among economists about how much the cut will benefit capital and how much it will benefit labor. Mr Hassett’s “conservative” claim that the cut will raise wages by $4,000 in an economy with 150 million workers is a claim that workers will benefit by $600 billion or 300 per cent of the tax cut. To my knowledge, such a claim is unprecedented in analyses of tax incidence. Mr Hassett, though, doubles down by holding out the further possibility that wages might rise by $9,000.