Tag: tax

Use relevant evidence

In October 2017, the Council of Economic Advisers, an agency within the office of the President, released a short report on the effect of a large proposed corporate tax cut on wage growth. The only graphical evidence included is

The presentation is clear, but a graph like this raises the obvious questions: Are these countries similar to the United States? What is significant about these four years?

Presumably the CEA has access to more clearly relevant data.

An analysis by the Economic Policy Institute comes to a very different conclusion. It includes this graph

The evidence is less compelling. You could argue that the 1986 corporate tax cut led to a modest increase in compensation, perhaps through productivity growth. Or perhaps the tax cut interrupted the decades long decline of compensation growth. In any case the United States has not experienced a compensation growth of 2% or more for at least 40 years.

Meaningless bar chart

In October 2017, the Council of Economic Advisers, an agency within the office of the President, released a report on the effect of a proposed corporate tax cut on wage growth. It was not widely praised. The report predicts that:

“Reducing the statutory federal corporate tax rate from 35 to 20 percent would, the analysis below suggests, increase average household income in the United States by, very conservatively, $4,000 annually.”

and

“Using 2016 household income as the baseline, these effects translate into an increase in average household income from $83,143 in 2016 to between $87,520 and $92,222, an increase of $4,000 to $9,000 in wage and salary income alone. (See Figure 2.)”

The bar chart in Figure 2 clearly and compellingly shows that 9000 is more than twice as big as 4000. The competition is strong, but this is clearly a candidate for dumbest graph of 2017.

One of the basic guidelines in graph design is that the quantity axis of a bar chart should include zero. In this case, that means plotting income and changes. If a bar chart is needed, it should look more like this.

The predicted increases are 5 and 11%. The authors do not state when the income increase will be fully achieved, but the report suggests 7 years out. This would correspond to annual growth of 0.6 to 1.3%, similar to the 1.1% average rate that occurred from 2008 to 2016.

Perhaps the authors are asserting that the income growth rates would add so that the total would be about 2%. That is a growth rate not seen since 1974, when the corporate tax rate was much higher.

Who are these people? Is that the best they can do for justification?One hint is the the Chair is Kevin Hassett, perhaps best known as the co-author of Dow 36,000 in 1999.