331. Why the Trump Tax Cuts are Awesome/Terrible (Part 1)

Episode Summary

Executive Summary: The episode sets up a two-part debate on the Trump-era tax law by first profiling Kevin Hassett, chair of the Council of Economic Advisers, and his case for corporate tax reform. Hassett argues the U.S. faced a productivity and investment problem, not a new economic normal, and that lower corporate taxes and opportunity zones can raise investment, wages, and growth. The episode also frames the coming rebuttals from former Obama-era CEA chairs.

Main Topics: Introduction to Behavior Change for Good promotion (Priority: 2/5): The episode opens with a call for 24 Hour Fitness members to join the Step Up exercise experiment tied to the Behavior Change for Good project, using text nudges and Amazon Cash incentives. Tax reform as a political flashpoint (Priority: 5/5): The host recounts the American Economic Association panel where the newly passed Trump tax law triggered unusually political conflict among economists, setting up a debate over corporate tax cuts and distributional effects. Kevin Hassett’s background and path to the CEA (Priority: 4/5): Hassett’s career in academia, the Fed, AEI, campaigns, and tax-policy analysis is presented as the foundation for his role as Trump’s CEA chair and his credibility on tax reform. Why the Trump administration pursued tax reform (Priority: 5/5): Hassett argues the U.S. faced slow growth, weak productivity, and misallocated capital, making a major corporate tax overhaul necessary to spur investment and wages. The role of the president and evidence-based policymaking (Priority: 3/5): Hassett describes Trump as highly engaged with charts, debate, and data, though often intuition-driven, and says that challenge can improve policy analysis. Opportunity zones and distressed communities (Priority: 4/5): Hassett highlights opportunity zones as an underappreciated part of the tax law, designed to channel private investment into distressed areas by deferring capital gains taxes. Deficits, fiscal conservatism, and long-term tradeoffs (Priority: 4/5): The discussion addresses the apparent tension between GOP deficit hawkishness and the large fiscal cost of the tax cuts and spending priorities, with Hassett arguing medium- and long-term consolidation still matters.

Key Arguments: Hassett argues the U.S. economy was suffering from a genuine investment and productivity problem, not merely a temporary slowdown or a permanent “new normal.” He contends that the old corporate tax regime encouraged capital to move abroad, leaving workers to bear the burden through weak wage growth and low productivity. He says lowering the corporate tax rate should bring capital home, increase capital deepening, and ultimately raise wages and growth. He frames Trump’s 21% corporate tax rate cut as economically central and already visible in plant relocations, repatriation, and wage gains. He argues Trump is unusually engaged with economic charts and debate, and that his challenges often sharpen analysis rather than undermine it. He sees opportunity zones as a potentially important, market-based tool for reversing bad local equilibria in distressed communities. He acknowledges the tax bill was the result of congressional horse trading and did not fully match campaign promises, but still regards its core structure as sound. He says near-term deficits may be justified by urgent needs like defense readiness, while long-term fiscal consolidation remains important.

Data Points: Corporate tax rate: reduced from 35% to 21% - The centerpiece of the Trump tax law discussed in the episode Original Trump campaign corporate tax promise: 15% - Campaign proposal contrasted with the enacted 21% rate Standard deduction: increased - Republican tax law simplified filing for many taxpayers Tax bill support in Congress: zero Democratic votes - The law passed without Democratic backing AEA conference attendance: more than 10,000 economists - Annual American Economic Association conference described in the opening Opportunity zones projected federal cost: about $1.6 billion over 10 years - Estimated cost of the distressed-community investment provision Overall tax bill projected cost: at least $1 trillion over 10 years - Cost estimate for the broader Republican tax package Reported beneficiaries of wage increases: more than 4 million people - Hassett’s claim that workers have already seen pay raises after the bill Confirmation vote: 81 to 16 - Kevin Hassett was confirmed as CEA chair by the Senate CEA chair number: 29th - Hassett identifies himself as the 29th chairman of the President’s Council of Economic Advisers

Pivotal Quotes: "We had really kind of like a raging problem that required antibiotics of a tax reform." — Kevin Hassett: His summary of why major tax reform was needed "We think that the path to low productivity and low economic growth that we experienced over the last few years is not something that signals a radical departure from the trajectory that we've grown to know and love." — Kevin Hassett: His argument that the U.S. was not entering a permanent low-growth era "the genius of the wisdom of crowds idea" — Kevin Hassett: His description of Trump’s decision-making style and openness to debate

Implications: The episode frames tax reform as a high-stakes test of competing economic theories: whether lower corporate taxes and targeted incentives can lift growth and wages, or whether they mainly widen deficits and enrich capital. Listeners are left with a preview of a broader economist-on-economist showdown.