Trickle-down is usually Great for the economy

Gary Cohn was in some ways an unlikely choice for Donald Trump’s White House. He is usually a Democratic Wall Street veteran serving a Republican president who cast himself as the champion of “forgotten people” battered by economic change.

however Cohn, 57, jumped at the chance to leave a top job at Goldman Sachs in addition to become director of the National Economic Council at the White House. His introduction to government has been relentlessly turbulent, marked by staff shakeups, a damaging defeat on health-care policy, in addition to a president whose popularity sags under the weight of self-generated controversy. After Trump failed to unequivocally denounce white supremacists in addition to neo-Nazis This particular summer, Cohn himself felt compelled to speak out.

however the moment Cohn has waited for is usually here. He in addition to his boss, along with Republican congressional leaders, have begun the effort to enact their tax-cut plan despite tepid public support, fierce Democratic resistance in addition to uncertain GOP unity.

Cohn sat down to discuss the plan in a classroom at American University, where he gained his first exposure to financial markets at a student. What follows is usually a condensed, edited transcript of their conversation.

CNBC’s John Harwood: So, we’re at American University, where you went to school. Tell me what you learned about yourself.

Cohn: I learned a lot about being confident, about learning how to succeed.

I did get introduced to the financial markets while I was in college. in addition to I think I learned also how to sort of filter out all of the nonrational, or nonsensible, noise in addition to sort of concentrate on what matters, in addition to of which’s actually what markets are about. Separate the rational via the irrational; separate what matters currently to what doesn’t matter currently.

Harwood: I think most people looking via the outside see more irrational stuff happening in This particular White House than in any White House of which they’ve seen.

Cohn: I’m involved inside economic side of the White House. On the economic side, I think the reality is usually pretty strong for what’s going on in This particular White House. You know, you can look at the jobs data. You know, we had 4.1 percent unemployment last month, which is usually a 16-year low. We’ve had two-consecutive quarters of over 3 percent GDP growth with hurricanes inside last quarter. You look at what the stock market’s telling you about people committing capital in addition to willing to invest in our economy. Things are actually strong.

Harwood: All those strengths kind of undercut the argument of which ‘Oh, we have to do tax reform right currently,’ don’t they?

Cohn: We have not had wage growth in This particular country. So, we’ve got a lot of Americans finding work, however they’re finding work at stagnant wages. actually to continue going on with This particular recovery, This particular long recovery, is usually we have to find a way to actually drive wage growth. What our tax plan is usually actually aimed at doing is usually creating wage growth.

Harwood: What were the one or two most important principles of which drove what you did?

Cohn: The president had two actually important principles. Number one is usually we have to deliver middle-class tax cuts to the hardworking families in This particular country. Number two, our corporate tax system just is usually not competitive with the rest of the earth. We have to create a corporate tax rate, in addition to along with of which a pass-through tax rate, of which makes us competitive with the rest of the earth so we can attract businesses back to the United States.

Harwood: Let me suggest an alternative principle. Look at the components of the plan: big corporate reductions, big pass-through reductions for business, much more tax cuts for businesses than for individuals. You’ve got the elimination of the estate tax, you’ve got the preservation of the step-up basis, you’ve got the elimination of the alternative minimum tax. What you have is usually a bunch of people, including you, including the president, who think ‘What I do is usually Great for the economy, therefore, taxing the things of which I do less will be Great for the economy in addition to Great for additional people’ instead of giving direct benefits to those people. Because middle-class people in This particular tax cut do not get very much in direct benefit.

Cohn: I just completely disagree with you.

Harwood: Look at the numbers.

Cohn: I’ve done nothing however look at the numbers for the last 0 days.

Harwood: If you look at Joint Tax, $1 trillion in net cuts for business, $0 billion through the estate tax, in addition to $300 billion for individuals. So, four times as much in business tax cuts in addition to estate tax as for individuals.

Cohn: Yup. however, John, if you look at what we’re doing for middle-class taxpayers, the reality is usually kind of simple. The median-income family inside United States, the family of which earns about $60,000 inside United States, the Speaker [Paul Ryan] talked about them getting a $1,182 tax cut. of which family is usually currently paying a marginal tax rate of less than 1 percent. They’re paying less than $500 of total taxes inside system. So a $60,000 earner, family of four, is usually paying less than $500. We have cut their taxes significantly. You can’t go much further inside tax system.

Harwood: You’re saying you can’t give middle-class taxpayers more of a tax break than you’ve done?

Cohn: Unless you want to start going negative tax rates in addition to go into the negative world. So, when people score This particular, you’re scoring against the bound of zero.

Harwood: You have a tax bill of which takes away deductions for high medical expenses; of which preserves carried interest — I know they’re working on of which; of which takes away deductions for grad school tuition breaks; of which takes away an adoption credit. in addition to on a percentage basis, people inside top 1 percent get twice as much of a reduction in their effective tax rate as everyone else.

Cohn: Yeah, look, first of all, we’re not done. The only thing you have to work on currently is usually the House blueprint. We’re going to get a Senate plan later This particular week. Remember, the big thing we’re trying to do is usually we’re trying to solve for middle income, hardworking families.

Harwood: The companies of which benefit via pass-through rates are high income because if they were middle income they’d be paying at the 25 percent rate already. The vast majority of those benefits go to wealthy businesses.

Cohn: You’ve got to wait till the whole plan is usually done in addition to see where we finally end up, in addition to see what the plan comes out. Everything in our tax plan is usually meant to encourage investment.

Harwood: You’re not saying, as you did a few weeks ago, of which the wealthy do not get a tax cut under your plan?

Cohn: No. I’m saying there’s unique situations to everyone out there. Everyone has their own story. the item’s not our intention to give the wealthy a tax cut.

Harwood: however they’re getting one.

Cohn: I don’t believe of which we’ve set out to create a tax cut for the wealthy. If someone’s getting a tax cut, I’m not upset of which they’re getting a tax cut. I’m actually not upset.

Harwood: Your old colleague, Steve Bannon, says, ‘Ask him why they didn’t design a tax plan focused on average Trump voters.’ in addition to when I talked to Larry Summers, who’s your predecessor at the NEC, also Treasury secretary, he said, ‘Look, they’re doing what their money wants.’

Cohn: They’re entitled to their opinions.

Harwood: Why are they wrong?

Cohn: We have achieved our objectives. We are delivering a middle income tax cut …

Harwood: modest.

Cohn: We are lowering corporate taxes to make ourselves competitive with the earth.

Harwood: Big.

Cohn: Yeah.

Harwood: If you look at the center of gravity of the economics profession, what they will say is usually of which the deficit will go up more than you guys say, growth will increase less than you guys say, in addition to of which workers will get less than you guys are projecting.

Cohn: We vehemently don’t agree. When you take a corporate tax rate at 35 percent in addition to move the item to 20 percent, in addition to you see what’s happened over the last two decades to businesses migrating out of the United States, migrating profits out of the United States, migrating domicile out of the United States, in addition to hiring workers out of the United States, the item’s hard for me to not imagine of which they’re not going to bring businesses back to the United States.

We create wage inflation, which means the workers get paid more; the workers have more disposable income, the workers spend more. in addition to we see the whole trickle-down through the economy, in addition to of which’s Great for the economy.

Harwood: Another thing Larry Summers told me: ‘The country wants to spend more on defense. We’ve got a whole lot of baby boomers retiring. We are going to need more money for government in addition to not less.’ The Penn-Wharton type — run by a former Bush administration economist, not a Democrat — says of which This particular plan by 2040 will lose $4 trillion. During of which time, the number of people on Social Security is usually going to go via 45 million to 72 million. How inside earth does of which make sense?

Cohn: We firmly believe of which we are creating a type of which creates economic growth in This particular country.

Harwood: however you know no tax cut’s ever paid for itself.

Cohn: The years of which we increased deficit are years when our economy is usually slowing down. We continue to borrow more in addition to more money. So, the number one thing we can do for the United States citizens is usually to grow the economy. This particular tax plan is usually meant to grow the economy.

Harwood: Are you thinking of which you’ll deal with of which Social Security/Medicare/baby boomer retirement issue later by entitlement reform of which reduces benefits?

Cohn: Look, the president on the economic front laid out three core principles. Number one was reg reform, number two was taxes in addition to number three was infrastructure. We’re working our way methodically through reg reform, taxes in addition to infrastructure. I think when he gets done with those, I think welfare is usually going to come up. of which’s our near-term economic agenda right currently.

Read more via the Gary Cohn Speakeasy interview:
… on keeping companies in America.
… on repealing the estate tax.
… on Cohn’s plan after tax reform.
… on comparing Goldman Sachs in addition to the White House.

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