CEA Report: Corporate Tax Reform and Wages – Theory and Evidence
Today, the Council of Economic Advisers released a report on the relationship between the corporate tax rate and wage growth. Please see below for the executive summary and read the full report here.
Wage growth in America has stagnated. Over the past eight years, the real median wage in the U.S. rose by an average of six-tenths of a percent per year. But even as Americans’ real wages stagnated, real corporate profits soared, increasing by an average of 11 percent per year. The relationship between corporate profits and worker compensation broke down in the late 1980s. Prior to 1990, worker wages rose by more than 1 percent for every 1 percent increase in corporate profits. From 1990-2016, the pass-through to workers was only 0.6 percent, and looking most recently, from 2008-2016, only 0.3 percent. The profits of U.S. multinationals are still American profits, but, increasingly, the benefits of those profits do not accrue to U.S. workers.
The deteriorating relationship between wages of American workers and U.S. corporate profits reflects the state of international tax competition. The problem is not unique to America; countries around the world have responded to the international flow of capital by cutting their corporate tax rates to attract capital back from other countries. They have doubled down on such policies as they have seen business-friendly policies benefit workers.
This analysis from the Council of Economic Advisers reviews the evidence that has driven other developed countries to pursue the path of lower corporate tax rates and estimates how business tax reform in the Unified Framework for Fixing Our Broken Tax Code (hereafter, the “Unified Framework”) is expected to affect wages for American workers.
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. The increases recur each year, and the estimated total value of corporate tax reform for the average U.S. household is therefore substantially higher than $4,000. Moreover, the broad range of results in the literature suggest that over a decade, this effect could be much larger.
These conclusions are driven by empirical patterns that are highly visible in the data, in addition to an extensive peer-reviewed research. While much of the academic literature predates the latest data, the covariation between the trajectory of inflation-adjusted wages and statutory corporate tax rates (Federal and sub-Federal) between the most-taxed and least-taxed developed countries (OECD) over recent years, visible in Figure 1, is indicative of these papers’ findings. Between 2012 and 2016, the 10 lowest corporate tax countries of the OECD had corporate tax rates 13.9 percentage points lower than the 10 highest corporate tax countries, about the same scale as the reduction currently under consideration in the U.S. The average wage growth in the low tax countries has been dramatically higher, as would have been predicted by a consumer of the academic literature, which looks at much longer time periods and explores the relationship with modern econometric techniques.
This sizable empirical literature measures the relationship between wages and corporate taxes, controlling for other variables that may affect wage growth across countries and over time. The literature suggests the relationship between corporate taxes and wages is more than observational and is econometrically robust. The remainder of this report explains the theory and the empirical regularities that relate lower business tax rates – such as those in the Unified Framework – to higher wages and uses these estimates to measure the likely wage effects of the business tax reforms of the Unified Framework.
The White House
President Donald J. Trump Supports Tax Reform for Hardworking Americans
“Your government is working for you once again, not for the donors, not the special interests, but the hardworking taxpaying citizens of our country.” – President Donald J. Trump
RAISE WAGES AND BRING JOBS HOME: President Donald J. Trump supports the unified framework for tax reform to bring back jobs and raise wages for American workers.
• Most economists agree that our corporate tax rate harms American workers by keeping their wages down.
o More than 70 percent of the corporate tax burden falls on American workers, according to a Congressional Budget Office analysis.
• Cutting the corporate tax rate from 35 percent to 20 percent, as proposed in the unified framework, could boost wage growth for the median household to almost four times its current rate, according to analysis from Council of Economic Advisors (CEA).
o This increase could provide $4,000 in additional income to the average American household, according to CEA analysis.
• Corporate profits are being kept offshore, benefiting foreign workers and harming our own. In 2016, firms kept 71 percent of foreign-earned profits abroad, according to the CEA.
• Tax reforms and cuts like those in the proposed framework encourage the investment needed to create jobs so Americans can get back to work and get well-paying jobs, based on date from the Bureau of Labor Statistics.
o After President Bush’s 2003 tax cuts, the economy created 7.8 million jobs over five years.
o After President Reagan’s 1981 tax cuts, the economy created 14.8 million jobs over five years.
o After President Kennedy’s tax cuts, the economy created 12.0 million new jobs over five years.
FAIR TAXES FOR HARDWORKING AMERICANS: The unified framework will cut taxes and put in place a fair tax code for American workers.
• Double the standard deduction so that more income is taxed at zero percent.
o The first $12,000 of income for individuals and $24,000 for married couples will be income tax-free.
• Consolidate the seven existing income tax brackets for taxable income to only three brackets: 12 percent, 25 percent, and 35 percent.
• Increase the Child Tax Credit and expand it to benefit more middle-income families and eliminate the marriage penalty.
• Create a new $500 tax credit for those caring for an adult dependent or elderly loved one.
EASY TAXES FOR HARDWORKING AMERICANS: The unified framework will make taxes easy for hardworking Americans and let them recover the hours wasted on filing complicated forms.
• The vast majority of Americans will be able to file their taxes on a single sheet of paper.
o American individuals and businesses spend more than 6 billion hours complying with the tax code, according to the IRS National Taxpayer Advocate.
o Individuals spend 13 hours, on average, and $210 to comply, plan, and file their tax return each year.
o $33.7 billion is the estimated out-of-pocket costs taxpayers spent on software and professional tax services, according to the National Taxpayers Union Foundation.
• The plan repeals the Alternative Minimum Tax, which effectively requires many taxpayers to do their taxes twice.
• The plan ends the job killing “Death Tax.”
o Close to 20 percent of family business owners say planning for the death tax affects their ability to create jobs, according to Family Enterprise USA.
o In 2016, family business owners spent an average of $74,940 on insurance for the death tax and $170,800 on other planning costs, according to Family Enterprise USA
Pro-Growth, Pro-Jobs, Pro-Worker, Pro-Family, and Pro-America
Last night, President Donald J. Trump traveled to Harrisburg, Pennsylvania, to deliver remarks on tax reform. The President was joined by Secretary of the Treasury Steve Mnuchin, Director of the National Economic Council Gary Cohn, members of Congress, and roughly 1,000 truckers, representatives and members of the American Trucking Associations, workers, manufacturers, and small business owners.
After addressing the natural disasters that have recently struck the United States, as well as the tragic shooting in Las Vegas, the President directed the focus to the Administration’s vision for tax reform and American economic revival.
“The biggest winners from this transformation will be everyday families, from all backgrounds, from all walks of life, and our great companies, which will produce the jobs,” President Trump said. “They are going to produce jobs like you’ve never seen before.”
The President discussed the need for a tax system that is fair to working families and that encourages companies to stay in America, grow in America, spend in America, and hire in America.
“For too long, our tax code has incentivized companies to leave our country in search of lower tax rates. My administration rejects the offshoring model, and we have embraced a brand new model. It’s called the American model. We want companies to hire and grow in America, to raise wages for the American workers, and to help rebuild American cities and towns,” said President Trump.
“As the central link in our nation’s supply chain, and the top employer in 29 states, the trucking industry knows tax reform will create tens of thousands of middle-income jobs for drivers, mechanics, technicians, warehouse workers, and more,” said ATA president Chris Spear in a tweet posted by @TRUCKINGdotORG.
Explore fact sheets and learn how the America First tax plan benefits American businesses and industries at whitehouse.gov/taxreform.
Remarks by President Trump on Tax Reform
Hangar 71, Pennsylvania Air National Guard
5:44 P.M. EDT
THE PRESIDENT: Thank you very much, ladies and gentlemen. It’s great to be back in Pennsylvania with the proud men and women of the American Trucking Associations. (Applause.) We love Pennsylvania, and we love our great truckers. (Applause.)
I also want to thank all of our wonderful members of Congress who are here with us today. Should I read their names? Yes? (Applause.) Then I will.
Representative Lou Barletta, great guy, running for governor. (Applause.) He’s running for the Senate. He’s running for the — where’s Lou? So, I heard he was running for governor, but then I heard he was running for the Senate. He’s going to win. You’re going to win big. You’re going to win big, Lou. Good luck. (Applause.)
A friend of mine for a long time, Representative Mike Kelly. (Applause.) Thank you, Mike.
Tom Marino — going to be the drug czar. He’s going to do a great job. Tom Marino. (Applause.) Thank you, Tom. He’s going to be amazing. The drug czar.
Patrick Meehan. Patrick. (Applause.) Thank you, Patrick.
Scott Perry. (Applause.) Scott.
And Lloyd Smucker. (Applause.) Lloyd, thank you. Thank you, Lloyd.
I also want to thank a couple of very special people. They’ve been fantastic in what they’ve done. Secretary of the Treasury Steve Mnuchin, who is here someplace. (Applause.) And Gary Cohn, Director of the National Economic Council. Thank you, Gary. Thank you. (Applause.)
And Mike Turzai, the Speaker of the Pennsylvania House of Representatives. Thank you, Mike. (Applause.)
I think that’s enough, right? That’s enough. (Laughter and applause.) We’ll start losing the crowd, Mike.
Before we begin, I want to take a moment to address some of the recent tragedies that have struck our incredible nation. In the darkest moments, the light of our people has shown through like seldom before — their goodness, their courage, and their love. No destructive force on Earth is more powerful than the strength and resilience of the American people. (Applause.)
We are praying for all of the families affected by the horrific mass shooting that took place in Las Vegas. We grieve with you, and we will never leave your side.
Our hearts are also with the victims of the wildfires in California’s Napa and Sonoma valleys — and they are wild and dangerous fires. And we have FEMA out there right now, along with a lot of first responders doing an incredible job with everybody else. And they really have done a really incredible — and it’s a very dangerous job. My FEMA people are incredible — incredible. (Applause.)
We have issued a disaster declaration and are working closely with state government. The recovery effort is fully underway for those impacted by the recent catastrophic hurricanes.
Through these difficult times, we have witnessed the unbreakable spirit of our nation. Together, we will restore, rebuild, and return stronger than ever before. That’s what’s happening. (Applause.)
We are here today to discuss our vision for America’s economic revival, which has already started. It started on November 8th. (Applause.)
We want lower taxes, bigger paychecks, and more jobs for American truckers and for American workers. It’s happening. (Applause.)
Nothing gets done in America without the hardworking men and women of the trucking industry. Do we agree with that? Do we agree? (Applause.) Thank you so much — job you do.
When your trucks are moving, America is growing. Do you agree? (Applause.) That is why my administration has taken historic steps to remove the barriers that have slowed you down. America first means putting American truckers first. (Applause.)
Since January of this year, we have slashed job-killing red tape all across our economy. We have stopped or eliminated more regulations in the last eight months than any President has done during an entire term. (Applause.) It’s not even close.
That includes eliminating the regulations that drive up the cost of energy. We want low-cost fuel for our truckers and for our families all across this country. And we are just getting started, believe me — just getting started. (Applause.)
I’ve ordered every agency across the federal government to review and then remove the regulations that destroy your jobs, hamstring your companies, and undermine your ability to compete.
My administration is also committed to passing a historic infrastructure package that will generate $1 trillion to rebuild America’s crumbling infrastructure with a special focus on roadways and highways. (Applause.)
It is time to take care of our country, to rebuild our communities, and to protect our great American workers. It’s about time. (Applause.)
And already, we are seeing the incredible results. Results that, in many cases, the media hates to report. But I’ll report them tonight for you. (Applause.)
Unemployment is at a 16-year low. (Applause.) Wages are rising — and you know you haven’t heard that in a long time. (Applause.)
The stock market is soaring to record levels, boosting pensions and retirement accounts for hardworking Americans. Their values are going up every single day. (Applause.)
And very proudly, just in the stock market alone, we have increased our economic worth by $5.2 trillion dollars. That’s right since Election Day — $5.2 trillion. (Applause.)
Think about that. That’s a quarter of the $20 trillion that we owe. So we’ve already — but listen to this because we’ve doubled — in the last eight years of the previous administration, the debt doubled, so that in eight years our debt — literally hundreds of years of debt — doubled in eight years to $20 trillion.
But since the election on November 8th, I’ve increased the value of your U.S. assets by more than the $20 trillion that we currently owe. (Applause.) You haven’t heard those numbers.
GDP growth reached more than 3.1 percent last quarter — way ahead of schedule. We weren’t supposed to hit that number for a long time. (Applause.) Not for a long time. And I will tell you, I think this quarter would have even been better, but we did get hit with some very, very powerful hurricanes. But it’s still going to be very good.
Manufacturing confidence is at an all-time high, which is great news for those who ship products to the marketplace. The confidence in our country is back like it hasn’t been in many, many years. (Applause.)
The fact is, America is finally back on the right track. But our country, and our economy, cannot take off like they should unless we transform America’s outdated, complex, and extremely burdensome tax code. (Applause.)
And that’s why I’m here with you right now, tonight. Thank you. And we’re going to fight, and we’re going to get those Republicans and maybe of few of those Democrats to raise their hand. And you’re going to have so much money to spend in this wonderful country and this great economy. (Applause.)
That is why we have proposed tax cuts that are pro-growth, pro-jobs, pro-worker, pro-family, and pro-American. (Applause.)
We need a tax system that is fair to working families and that encourages companies to stay in America, grow in America, spend in America, and hire in America. (Applause.)
Throughout the year, my administration has worked closely with Congress to develop a framework for tax reform that will deliver exactly that: more jobs, higher pay, and lower taxes for middle-income families and for American businesses of all size. (Applause.)
Our tax reform framework will achieve our four core principles:
First, we will cut taxes for everyday, hardworking Americans. (Applause.) Under our framework, the first $12,000 for a single individual and the first $24,000 for a married couple, will be tax free. No tax at all. (Applause.)
And remember, you’ll do your tax on a single piece of paper. (Applause.) H&R Block will not like Donald Trump very much. That’s one company, I will tell you — they will not like me at all. And that’s okay. We are nearly doubling the amount of income that based at the zero bracket.
In other words, as the Democrats say — and do they say untruths — you look at what’s happened, they’re not telling you the truth. Because they pretend there isn’t a zero rate. And there is, and it’s expanding very substantially under my plan. They don’t show the zero rate. So they go, oh, 15 percent, or 12 percent against 15. But it’s not. It’s 12 percent against zero. You take a look at the categories. So we’re bringing it down, remember, from eight brackets to four. But they’re forgetting to use the zero bracket, which truly is deceptive. Do we agree with that? (Applause.) It’s truly very deceptive.
Under our framework, we make the zero bracket bigger and get rid of the 10 percent bracket, and we’re reducing the 15 percent rate down to 12 percent. So that’s a massive amount of money. (Applause.)
So the rates are coming down to 0, 12 percent, 25 percent, and 35 percent — all big beneficiaries from what you have now. Big beneficiaries from what there is like you haven’t seen before.
Joining us today is Susi Schlomann, a retiree who recently moved to Pennsylvania from Queens, New York. Well, I like both places. I like Pennsylvania; I grew up in Queens. (Applause.) Went to school in Pennsylvania. Like them both. Where’s Susi? Where are you, Susi? Where’s Susi? Hi, Susi. How are you doing? You’re going to be happy with this, right? Because you know what I’m going to say. Thanks, Susi.
And Susi says that high taxes are forcing seniors like her to make painful cuts and cutbacks during the golden years of their lives. Best years of their lives. She hopes Congress will pass our framework so we can help more American seniors make ends meet on a fixed income. We must honor and respect — (applause) — the people whose decades of hard work helped to build our country and to make our country great. But we’re going to make our country greater than it’s ever been before. That’s what’s happening. (Applause.)
Our framework also provides relief to those who care for an adult dependent or elderly loved one through a $500 tax credit. So important, and so many people have wanted it. And we will substantially increase the child tax credit to save working families even more money. (Applause.)
The single most important investment our country can make is in our children. The strength of our nation is determined by the strength of our families, and we are committed to helping parents make starting and raising a family more affordable.
Also with us today is Laureen Cummings, a mother of four who owns a small staffing company that provides private nursing services and at-home care. Laureen. Where’s Laureen? Hello, Laureen. (Applause.)
Laureen says that if Congress passes tax relief and reform, she will be able to create more high-paying jobs for healthcare workers in the Scranton area. That’s an area that we love, I will tell you that. (Applause.)
Our framers framework will unlock the American dream for millions of our fellow citizens. By eliminating tax breaks and special interest loopholes that primarily benefit the wealthy, our framework ensures that the benefits of tax reform go to the middle class, not to the highest earners.
It’s a middle-class bill. That’s what we’re thinking of. That’s what I want. I’ve had rich friends of mine come up to me, and say, Donald, you’re doing this tax plan — we don’t want anything. We don’t. Now, they gain when the economy gains. They gain when companies get better. They gain in lots of different ways. But they don’t want that. So many people have come up to me and say, give it to the middle class. Give it to people that need it. Give it to people that want to spend it. You would be surprised.
Bob Kraft, he owns the New England Patriots, good guy, does very well. Good guy. He does a great job. He was at the White House recently. He gave me a Super Bowl ring. I was very honored. (Applause.) I was very honored. And as he’s leaving the White House, he said, Donald, I know you’re very soon going to be doing tax reform and tax cuts. Give it to the middle class. Don’t give it to us. Give it to the middle class. And that’s what we’re trying so hard to do. And you will see how good this is. (Applause.) So important. It is so important.
The second plank of our tax framework is to make the tax code more simple, fair, and easy to understand.
American families and businesses waste billions of hours, and tens of billions of dollars, on excruciating paperwork — you see that, I mean it’s all over the place, and you have no idea what you’re doing anyway — and compliance every single year. Massive numbers of paper. Under our framework, the vast majority of families will be able to file their taxes on that same single sheet of paper that I’m so proud of talking about. (Applause.)
As part of the effort to make our tax system simple and fair, we are going to protect thousands of family businesses by ending the crushing, horrible, and unfair estate tax, sometimes known as the death tax. (Applause.) That’s a tax that has destroyed so many businesses and kept those businesses out of your family, your children, your grandchildren. It’s very sad. But we are working to end the estate tax, to end the death tax, as it’s often called. (Applause.)
In the crowd today, we have Calvin Ewell and his son, Steve. Calvin. Where’s Calvin? Where is Calvin? (Applause.) Good-looking family.
The Ewells has been a trucking business and in the trucking business since 1946, a very good year. (Applause.) It’s a great year. I love that year. Trucking runs in their blood, and Calvin wants to pass his company along to his children, just as it was passed down to him by his father.
We are going to protect small businesses owners and their families so they can continue to run their companies with dedication and with love. (Applause.)
And we will make taxes simple, and easy, and fair for all Americans. (Applause.) Thank you, Calvin.
Calvin, you want to hand that business down, right? But you know, don’t worry about it for about 40 year, I hope, okay? 4-0 — long time. Right? Let’s keep him around. Thank you, Calvin. (Applause.)
Third, we will cut taxes on American businesses to restore our competitive edge and to create more jobs and higher wages for American workers.
The last major tax reform was passed more than 30 years ago in 1986, with a large bipartisan majority. I mean, it was a bipartisan bill. That would be wonderful. But sadly, the Democrats have become obstructionists. They want to stop. They don’t want to do anything productive. They want to raise your taxes very, very substantially.
I mean, I won’t even talk about open borders and higher taxes. That’s not a good combination to get elected, believe me. But it’s open borders and high taxes, but they are good at obstruction.
The 1986 tax bill substantially reduced our corporate tax rates to make America globally competitive. The plan worked, and jobs and industry boomed.
Other countries saw our success however and they copied our playbook. Our foreign competitors adopted tax rates much lower than ours and much more competitive, and all of the sudden, they started taking our businesses away from us.
In fact, when it comes to the business tax, we are now dead last among developed nations. Our rate is the least competitive rate. We have the highest tax rate anywhere in the world. How foolish is this?
Our business tax rate is 60 percent higher than our average economic competitor. The current system has placed a massive tax on every product made in America. Remember the expression, “Made in the USA,” “Made in America”? You don’t hear that so much, but you’re now starting to hear it again.
What do you like better — “Made in America” or “Made in the USA”? Ready?
Made in America. (Applause.)
Made in the USA. (Applause.)
Seems to be — hi, Jeffrey — the great Jeffrey Lord. (Applause.) He was on fake news CNN for a long time. He was one of my few sources of truth. Thank you, Jeffrey, for being here. That’s a great honor. Thank you. (Applause.) Good man.
But giving so many countries a tremendous advantage over us — if you look at China at 15 percent, and Mexico — all of these countries has a lower tax rate than the United States. You can’t compete that way.
It is time to end this unfair disadvantage and to give American companies and workers the level playing field they so richly deserve, finally. (Applause.)
Because when American truckers — and I mean these great, great people. These are great heroes. If they have a level playing field, there’s nobody on Earth with trucks or any other way that can beat you folks. There’s nobody. I know what you go through. There is nobody that can beat you. Nobody. (Applause.)
But you finally have a government — and frankly, you finally have somebody that has given up a lot. My other life was very good. I have to be — I had a very good life. (Applause.) I had a very good life. But you know what, I’m having a better life now, and I’m helping a lot of people, and that’s as far as I’m concerned. (Applause.)
And believe me, I love doing this because we’re doing so much, between the regulations and the taxes and the getting a Supreme Court judge not just nominated but getting him onto the Supreme Court — Justice Gorsuch, who is doing a great, great job at the Supreme Court — and appointing so many other great judges throughout the country. (Applause.) It was so important. They were so important. So I appreciate that.
But you finally have a government that is going to defend you and stand up for you and your country. (Applause.)
America is being respected again. Something happened today where a country that totally disrespected us called with some very, very important news. And one of my generals came in, they said, you know, I have to tell you, a year ago they would have never done that. It was a great sign of respect. You’ll probably be hearing about it over the next few days. But this is a country that did not respect us. This is a country that respects us now. The world is starting to respect us again, believe me. (Applause.)
Under our new framework, you will dramatically cut the business tax rate so that American companies and workers can win against those foreign competitors who are winning, in many cases, because they have an unfair advantage. We will cut the corporate tax rate from 35 percent and more, all the way down to no more than 20 percent — below the average of our major competitors from other countries. (Applause.)
The biggest winners from this transformation will be everyday families, from all backgrounds, from all walks of life, and our great companies, which will produce the jobs. They are going to produce jobs like you’ve never seen before.
When companies leave our shores, it’s the American workers who get hurt. And when companies stay in America, and move to America, it’s our wonderful workers who reap the rewards, including our great truckers who will have more products to deliver and more contracts to fill. That’s the way it happens. (Applause.)
For the many American truckers who file taxes as sole-proprietors, S corporations or partnerships, we will cap your top tax rate at a maximum of 25 percent — substantially lower than what you’re paying now. (Applause.)
The more than 30 million Americans who have small businesses will see — listen to this — a 40 percent cut in their marginal tax rate — 40 percent. (Applause.) I wouldn’t want to be a politician against that. (Laughter.) They’re going to have a long, hard winter.
This will be the lowest top marginal income tax rate for small and mid-sized businesses in more than 80 years. Not since 1931 have they had taxes anywhere near that level, right? (Applause.)
This huge — (laughter) — tax cut — two words, “huge” and now “rocket.” Can you believe it? I have (inaudible.) Rocket! You know what we’re talking about, folks, don’t worry about it. It will be rocket fuel and it will be rocket fuel for our economy.
With us today is Kevin Burch of Jet Express, who has been in the trucking business for more than 40 years. Where is he? Kevin? (Applause.) Forty years? You don’t look that old, Kevin. Good. Good job.
Kevin says that if Congress passes our tax relief and reform plan, he will be able to invest in new equipment and additional training for his dockworkers, drivers, and technicians. He wants to create more American jobs, and we are working to help him do exactly that. Plus, we’re working on a tax write-off that will be almost immediate with your investment. That’s something that you’ve never seen before. (Applause.)
And that’s part of our plan because companies, in order to compete over the next five-year period, allows our framework and within our framework, that you write-off 100 percent of the cost of new equipment in the year you buy it. When have you heard that one? (Applause.) That’s going to be a big one. That’s going to be big.
I’ve had calls from great, great businesspeople. They said, Mr. President, did you really say that? I said, yes, I did. And I might say, they do call me now, “Mr. President.” It’s very interesting. I’ve had friends for years, they know me — hey, Don, how are you doing? How’s it going? Blah, blah, blah. Now, when they see me, they’re all uptight. Uh, Mr. President, how is everything?
It’s weird. I say, will you please loosen up? All of these are friends for 30 years, and they get a little bit tight. But they are impressed with the one-year immediate write off. That’s what they’re impressed by. I think they’re very impressed.
We want our companies to invest and expand, because that means more jobs, more products rolling off the assembly line, and more truckers delivering those products to stores all across our country.
Finally, our framework encourages American companies to bring back the trillions and trillions of dollars in wealth parked overseas. (Applause.) Trillions of dollars.
Our current tax code actually punishes companies for keeping their headquarters in America. You see that. That’s happening. They’re being punished. It discourages them from bringing back the profits they earn overseas.
In 2016, American multinational companies kept 71 percent of their foreign-earned profits overseas and away from our country. Our framework will totally reverse this, and it’s a very, very troubling trend. We’ll be bringing back, probably, very close to 100 percent of the money back into our country where it can be put to work, and jobs will be created. (Applause.)
We will totally eliminate the penalty on returning future earnings back to the United States. And we will impose a one-time low tax on money currently parked overseas so it can be brought back home to America where it belongs, and where it can do its job. (Applause.)
My Council of Economic Advisers estimates that this change, along with a lower tax rate, would likely give the typical American household a $4,000 pay raise. (Applause.) Could be a lot more than that, too. You haven’t heard this. So about a $4,000 amount of money additional for the American family to spend. That’s very exciting.
And you’re going to spend that money, it’s going to be put to work, and jobs are going to be produced, and we’re going to start making our product again. Wouldn’t that be nice? It’s going to happen. (Applause.)
And by the way, not as part of our tax plan, but I am right now renegotiating trade deals that are so horrendous and so one-sided and so embarrassing for our country. We are — you’re probably reading in the papers — renegotiating NAFTA. We’re renegotiating — (applause) — various other deals with foreign countries that are so embarrassing and so horrendous that you would say, why on Earth would anybody have signed a deal like that?
I’ll also be announcing, as you know, my statement and what we’ll be doing with respect to the Iran Deal, speaking of badly negotiated deals.
AUDIENCE: Booo —
THE PRESIDENT: We’re doing that very shortly. (Applause.)
So to summarize: Our plan goes from eight tax brackets down to four; expands the zero tax bracket greatly; expands the child tax credit; repeals the estate tax and special interest tax breaks; cuts the corporate tax rate from much more and equal to 35 percent tax, and brings it down all the way down to 20 percent; and cuts tax rates for small businesses to the lowest level in more than 80 years. (Applause.)
AUDIENCE: USA! USA! USA!
THE PRESIDENT: And our great congressmen, congresswomen, and all of the people that we’re working with, all I can say is: You better get it passed. (Applause.) They will. I know. And you have great ones here in Pennsylvania.
For too long, our tax code has incentivized companies to leave our country in search of lower tax rates. My administration rejects the offshoring model, and we have embraced a brand new model. It’s called the American model. (Applause.)
We want companies to hire and grow in America, to raise wages for the American workers, and to help rebuild American cities and towns. We’re involved in all over the world. It’s now time we get involved with rebuilding our country. (Applause.)
No one knows America better than America’s truckers. Every single day, from coast to coast and border to border — where we will have a wall, by the way. In case you had any doubt. Does anybody have a doubt?
THE PRESIDENT: These guys don’t have a doubt.
In our largest cities and across the rolling plains, you see the incredible beauty of our natural wonders. You see things that few people see. In fact, I think you should take a major wage reduction, you have such a beautiful thing. (Laughter.)
And we see the enduring strength of the American spirit in those same truckers. What you see is incredible every day. What you see are things that nobody else sees. And I want to tell you, to the truckers in this room, which is a lot of people: you’re going to make more money, you’re going to do better than ever before, and we truly admire you. You are our heroes. Believe me. You are our heroes. (Applause.)
Over the decades, you have also seen the disastrous consequences of economic surrender. Our politicians surrendered. They gave up our country. You’ve driven past the shuttered factories, watched thriving communities become ghost towns, and witnessed America’s wealth get shipped away to foreign lands.
Now is our chance to reclaim America’s destiny. We can breathe new life into struggling industries and forgotten towns. We can end the special deals for special interests, and we will honor the hardworking, patriotic Americans who make this country run. (Applause.)
And you can help us stock the store shelves all across the country, and around the world, with more products stamped with those beautiful words, that we’re going to say it this way: Made in the USA. (Applause.)
We will lift our fellow citizens from welfare to work, from dependence to independence, and from poverty to prosperity. (Applause.)
American goods will sail across the oceans, American trucks will glide along our highways — so beautiful will those highways be — smooth, beautiful, no potholes. (Applause.) I know. No potholes.
I have many friends in the trucking business, and they tell me it’s never been like this. They’ll buy beautiful new equipment. By the time it goes from Los Angeles to New York and back, they have a big renovation job on their hands. They said they’ve never seen it like this before. They will be beautiful again. They will be smooth, beautiful, highways again. (Applause.)
The American flag — do we love our American flag? (Applause.) Right? I think people forgot how patriotic we are. I think people forgot how much we love our country. They’ve learned over the last week, haven’t they? (Applause.)
But American flags will soar high above the roads. Our cities and our towns will proudly display that flag. Our children will be raised in homes filled with love, communities filled with airplanes that are going back and forth — that’s okay — but communities filled with hope, and a nation filled with pride.
We will build this future together, as one people and one nation under God. (Applause.)
With your help, and your voice, we will bring back our jobs, we will bring back our wealth, and for every citizen across this land, we will bring back our great American dreams. (Applause.)
This is a great and proud state. I am so honored to be with you tonight. Thank you, God bless you, and God bless the United States of America. Thank you very much. Thank you. (Applause.)
6:25 P.M. EDT