Six months into tax reform, a White House economic adviser says everything is exactly as expected.
Kevin Hassett: 〝The thing that’s surprised me the most so far is how precisely the data have come in exactly as we expected with our models in the fall.〞
The U.S. manufacturing sector is showing strong confidence in the wake of the tax bill and amidst trade talks.
Aric Newhouse:〝95% optimism about the future of the economy, 77% plan to increase hiring, 86% plan to increase investment, 72% plan to increase wages. 〞
But will the tax bill pay for itself by relying on a 3% GDP growth as the White House economic adviser suggests? Mainstream economists have doubts.
David Stockton: 〝It’s an extremely optimistic view about what the tax cuts can do to economic growth.〞
Yet, they have been wrong more than once.
Kevin Hassett: 〝Don’t forget that back when we wrote our growth forecast last fall for this year, just a little bit north of 3 percent, that everybody was like, oh, these guys are crazy. And I had economists that advised previous presidents, there was one quote that every time I went on CNN they would play the quote, I don’t have to say the person’s name, where they introduced me like this on CNN -- because they’re so collegial to this White House, you might have noticed -- that Kevin Hassett is either stupid or a liar, or both. But that was over the 3 percent forecast. And now we look and everybody’s forecast is above ours.〞
Six months after tax law, what are the facts, and how will they affect you?
Hello, Welcome to 《Zooming In》, I’m Simone Gao. In December of last year, President Trump signed the massive tax bill into law. The bill removed the Affordable Care Act’s individual mandate, and it overhauled the tax code for businesses and individuals. It’s been six months since the president signed the bill. What are American people and business saying about it? Does its ability to pay for itself depend on whether or not there will be a recession down the road? And will there be a recession during Trump’s presidency? We’ll take a look at these questions as well as the most recent update on the U.S.-China trade war.
The newest Gallup polls from June 2018 show that satisfaction with the direction the U.S. is heading has reached a 12-year high. The findings are timely and show the effects of the Trump administration’s 6-month-old tax law. According to Speaker of the House, Paul Ryan, who was a main author of the bill, the polls show that the tax bill is a success. Millions of Americans have received bonuses and wage increases, one million jobs were created, utility rates were lowered in 48 states, and unemployment is at record lows.
At a June 26th Washington Post event on tax reform, Kevin Hassett, Chairman of the Council of Economic Advisers to the White House expressed surprise that the data is perfectly in line with what their fall models projected.
Kevin Hassett: 〝The thing that’s surprised me the most so far is how precisely the data have come in exactly as we expected with our models in the fall. And our estimate of what would happen to structures was that it would go up 14, I think 14.2 percent because of the tax bill, and it should jump immediately in the models that we use. And in the first quarter GDP, it went up 14.3 percent. And we thought that equipment would go up about 9 percent, and I think it went up 8-something percent. We thought intangibles investment would go up around 11 percent; it went up 11 percent. We said 9 percent for overall investment, and it was like 9.2. And so the biggest surprise, and I’m sure that the second quarter, it looks like, is going to be way above those numbers, but the real surprise for me was that the models worked, and they worked not only in the top line, but in the sort of cross section too. 〞
Narration: A big promise of the tax reform is it would increase wages by $4000 per average American. Kevin Hassett said America is either on the right track to achieve that, with some having already achieved it.
Kevin Hassett : 〝we thought in over three to five years, that the average wage in the U.S. would go up by $4,000 and that was based on basically the capital accumulation happening that our models predicted. And so think about it, I just mentioned that the first quarter capital spending number came in precisely on expectation and so we are on the path to get that extra money. But the thing that surprised me is how many firms, looking ahead to a tight job market and a lot of higher productivity have increased wages already.〞
Paletta: 〝Through bonuses or through wages?〞
Kevin Hassett : 〝Well, bonuses and wages both. And also, increased 401(k) contributions but we keep track of this. We’re closing in on seven million. We’re north of six million workers have received an average increase of 1,200 bucks. But some of those people in the database have already gotten the 4,000 and to put the 4,000 in perspective, Walmart increased their minimum wage by $2 an hour and if a full-time worker gets a higher wage by $2 an hour, then that’s pretty close. It’s getting up into the high 3000’s, so let’s just say it’s getting closer to 4,000. And if the lowest paid guy at Walmart is already this year getting something that’s within hailing frequencies of the $4,000 then it makes the $4,000 number seem pretty reasonable, right? But during the tax debate when our analysis, which again was just math and data was saying the $4,000 number, then you would have thought that it was a crime against humanity to assert such a thing. But the fact that the lowest paid guy at Walmart is almost getting that. In the first year, when we said it’d be three to five years, it suggests the thing is working.〞
Kevin Hassett was challenged on this front by Seth Hanlon from the Center for American Progress who argued that the data says wage growth has not gone up at all from last May to this May. The discrepancy in numbers is due to a difference in data calculations. Dr. Hassett used nominal wage growth with the Employment Cost Index, whereas Hanlon adjusted numbers for a real wage growth calculation.
Unlike economists who differ in models and methodology application, the reaction from the U.S. manufacturing sector is unified and simple.
Aric Newhouse（全美制造商协会副总裁）：〝2016年的前五个月，制造业失去了16,000个就业岗位。2017年同期，制造业却创造了约63,000个就业岗位。 今年，我们已经创造了115,000个就业岗位。当然，你还是可以说这只纯粹是偶然。但我认为，经济的这种表现与国会通过税改直接相关。〞
Aric Newhouse:〝So 2016, the first five months of the year, the manufacturing sector lost 16,000 jobs. 2017, same period, first five months, the manufacturing sector created around 63,000 jobs. This year, we’ve already created 115,000 jobs. So, now, again, you could make the argument that that is just accidental. I would make the argument that there is a direct relationship between what we’re seeing in the economy and what Congress and policymakers did on the tax code.〞
Narration: According to Aric Newhouse, a 20-year-old survey about optimism level among manufacturers also indicates high confidence in economy.
Aric Newhouse（全美制造商协会副总裁）：〝该问卷调查已有20年的历史。95％的人对经济的未来持乐观态度， 我们问了20年这个问题， 95%是我们见过的最高数字。77％的企业计划扩招，86％计划增加投资，72％计划增加工资。中小型企业 - 让我更谨慎地回答这个问题。我想起了位于俄亥俄州弗农山的一家公司，Ariel公司。就在哥伦布市东北约45,60英里的地方。 这家公司在那里有450名员工，全国范围有2,000名员工。 Ariel公司今年将工资提高了13％，这是很显著的增长，与税改直接相关。〞
Aric Newhouse ：〝optimism about the future of the economy, 95%. We’ve been asking that question for 20 years. This is the highest number we’ve ever seen.
Seventy-seven percent plan to increase hiring, 86% plan to increase investment, and 72% plan on increasing wages. So, again, that kind of—the small, medium size—let me kind of answer the question more discreetly. I think about a company in Mount Vernon, Ohio, about 45, 60 miles northeast of Columbus. There’s 450 employees there, 2,000 employees across the country. Ariel corporation raised its wages by 13% this year. That’s pretty powerful. And it’s directly related to the tax bill.〞
But an organization representing workers in the Communications industry sees a different picture.
Chris Shelton:〝 president of the Communication Workers of America. You know, when the tax bill—when they were talking about it, employers were coming out saying that they were going to give a $4,000 wage increase. That just has not happened. It’s not on the horizon to happen. We’ve seen—and they were going to increase jobs. We’ve seen jobs. For instance, one of our employers, AT&T, where we have about 110,000 people, said they were going to increase jobs by 7,000 jobs for every billion dollars in tax cut. Well, they got a $3 billion tax cut and we’ve seen 6,000 layoffs since the tax cut happened.〞
Coming up: Will the tax law pay for itself? And what’s in store for the U.S. economy？
U.S. debt and spending is growing rapidly. Cutting taxes will further reduce government revenue. But it will also unlock more economic potential. Will the tax law pay for itself and make a profit? Here’s Kevin Hassett’s calculation.
Kevin Hassett : 〝Again, I think that if we grow an extra percent a year, remember, when we took office, the president promised 3% growth. I think we’re almost certainly, I think right now, our internal models say it’s about 80% that we’ll have a full year of 3% once we get second-quarter GDP in. That if you grow 3% instead of say, the 2% that we inherited for 10 years, that’s an extra percent a year. That’s not just tax. That’s deregulation and whatever else we do. But a percent a year, that gets 10% higher GDP in the 10th year and I guess GDP in the 10th year right now is estimated to be about 28 trillion, so you get about $2.8 trillion more GDP. Or let me put it this way: so right now, the deficit over 10 is about a trillion dollars higher because of the expansion of spending and because of the CBO’s unwillingness to have much growth effect from the tax bill. But GDP over the next 10 years is what, more than four times higher. I think it’s about six times higher than that. So would you trade a trillion dollar increase in the deficit for 6 trillion more GDP? If you have a model that says you shouldn’t do that, then you probably should check your model.〞
萧茗（Host/Simone Gao）：Hassett博士的预测表明，如果未来几年经济能快速增长的话，实施减税法案就不会减少联邦政府的财政收入，我也采访了彼得森国际经济研究所高级研究员David Stockton。他说减税法案可能会减少财政收入。
Dr. Hassett’s projection that the tax bill will pay for itself assumes that there will be several years of high growth in the future. I asked David Stockton, senior fellow at the Peterson Institute for International Economics. He says it’s unlikely the tax bill will be able to pay for itself.
David Stockton（彼得森国际经济研究所高级研究员）：〝我认为这不太可能。减税到底对经济增长会有什么影响，你刚提到的是一个非常乐观的观点。我们研究过的许多经济模型表明，减税后的未来10年，GDP只会比减税前多增长一个百分点，也就是说每年只多增长0.1%。我认为这可能是一个更合理的看法。要实现3％的增长，就需要通过减税来实现劳动生产率的巨大增长，而这种增长率似乎尚未出现。即使我们的投资支出有所增加，这倒是很有可能的，但投资的增加不可能大幅度的提升经济增长率。我认为减税对经济的刺激作用，只有Kevin Hassett预计的十分之一。事实上，在这种情况下，减税就会减少联邦政府的财政收入。昨天，美国国会预算办公室发布了一份关于长期预算前景的报告，他们也看到美国债务水平相对于GDP的大幅增加。它将在未来十年内接近100％，并可能在未来三十年内达到150％，除非未来政府采取有力措施来控制这些赤字。〞
〝 So I think that’s highly unlikely. It’s an extremely optimistic view about what the tax cuts can do to economic growth. A lot of economic models that we’ve surveyed suggest that you might get a percentage point on the level of GDP over the next 10 years, that’s just a tenth of a percent of additional growth per year. I think that’s probably a more reasonable mainstream. Getting up to 3 percent growth would require the tax cuts to produce an enormous increase in the growth rate of productivity that just doesn’t seem to be in the cards yet. And even if we got a step up in investment spending, which I do think is likely, it’s not likely to produce such an overwhelming increase in the growth rate of the economy. So I’d be thinking, basically, a tenth of what Kevin Hassett suggests for additional growth. And in that case, in fact, the tax cuts will not pay for themselves. And yesterday the Congressional Budget Office here in the United States issued a report on the longer term budget outlook, and they, too, see a very substantial increase in the level of U.S. debt relative to the GDP. It will rise close to a 100 percent by the end of the next decade and maybe to 150 percent over the next 30 years unless policies are changed in the future to reign in those deficits.〞
萧茗（Host/Simone Gao）：几十年来美国的GDP增长率都没有达到3％，这是肯定的。但这是川普上任之前。主流媒体和经济学家是否会对经济做出另一个的错误预测呢，就像他们曾对大选做出的错误预测一样？让我们听听Kevin Hassett先生的看法。
The U.S. hasn’t had a 3% GDP growth for decades, that’s true. But that was before President Trump took office. Will economists and the mainstream media make another economic forecast mistake just like they did with the election? Kevin Hassett has this to say.
凯文・哈赛特（美国白宫经济顾问委员会主席）：〝别忘了，当我们去年秋天预测今年经济增速时，只预计会略高于3%。当时没人相信。一个曾给前任总统做过顾问的经济学家有一句话，每次我去CNN，他们都会播这句话。 我不想说这个人的名字，他们在CNN上这样介绍我，因为他们对白宫讲道理，你可能已经注意到了，‘Kevin Hassett要么是傻子，要么是骗子，要么两者兼而有之。’但如今的经济增长超过了3％的预测，现在看起来其他人的预测都高于我们的预测。〞
Kevin Hassett : 〝Don’t forget that back when we wrote our growth forecast last fall for this year of just a little bit north of 3%, that everybody was like, “Oh, these guys are crazy,” and I had economists that advised previous presidents—there was one quote that every time I went on CNN, they would play the quote. I don’t have to say the person’s name, where they introduced me like this on CNN because they’re so collegial towards this White House, you might have noticed. ‘That Kevin Hassett is either stupid or a liar or both.’ But that was over the 3% forecast and now we look and everybody’s forecast is above ours.〞
萧茗（Host/Simone Gao）：Hassett先生预计，高增长能弥补低税率带来的财政收入的损失，但前提条件是：经济不能出现衰退。David Stockton先生认为，在未来10年内出现经济衰退的可能性很大，就是因为我们还没有解决经济衰退的问题，未来还会发生。另一方面，Hassett先生说，尽管从概率算经济衰退的可能性可能超过50%，但经济顾问委员会迄今没有预测过将会发生经济衰退。几周前我们采访的Fannie Mae首席经济学家Douglas Duncan先生印证了他的观点。
Mr. Hassett’s projection that the high growth rate that enables the tax bill to pay for itself depends on another important factor: there will be no recession. David Stockton believes there is a high probability that in the next 10 years there will be a recession, simply because we haven’t cured recessions and they are going to happen again. Hassett on the other hand claims although the odds of there being a recession unconditionally are probably north of 50-50, no CEA has predicted one so far. Douglas Duncan, Fannie Mae’s chief economist who we interviewed a few weeks ago echoed his opinion.
Douglas Duncan（房利美首席经济学家）：〝美国经济正在健康增长。今年的增长率在2.5％到3％之间。 减税可能会刺激今年甚或明年的经济增长。此外，预算协议中的额外联邦支出也会支持经济增长。我们预计景气会维持至少三年。在那之后，经济增长会放缓，但不一定是直接的经济衰退， 放缓是因为减税和增支对经济的刺激作用，会随着时间的推移而逐渐消退。 该税收法案的一部分实际上是临时性的，其中的一些条款将会过期。因此，随着时间的推移，我们预计经济增长会有一些放缓。〞
Dr. Duncan：〝The U.S. economy is growing healthily. It’s somewhere between two and a half and three percent growth this year. The tax cut will probably offer some support for that over this year and perhaps next year. Also, the additional federal spending that was put in the budget agreement offers some support. Going beyond another year and a half and further on, we expect things to slow, not necessarily forecasting directly a recession, but some slowdown because there’s the initial impulse of the tax bill and the spending, which then wanes over time. Part of that tax bill is actually temporary, and some provisions of it expire down the road. So as those things happen, we would expect to get some slowdown in growth. 〞
Coming up， Is China approaching its Minsky moment amid a trade war with the U.S.?
On June 18, President Trump ordered his chief negotiator, U.S. Trade Representative Robert E. Lighthizer, to identify a list of $200 billion in goods to levy a 10% tariff on if China refuses to narrow the trade deficit as requested.
Adding up all previous rounds of threats, this administration is aiming at $450 billion worth of goods that could be subject to tariffs.
If these steps are taken, nearly all $505 billion dollars in products that the United States imports from China would be under tariffs.
China retaliated and vowed to fight back. Xi Jinping told a group of U.S. CEOs on June 25th that China would strike back by delaying licenses, holding up M&A deals, or potentially turning its one billion consumers against U.S. products on top of tariff increases.
The trade war escalation didn’t end there. President Trump explored the option to use his presidential power to restrict Chinese companies from investing in U.S. technology firms. He later decided to take a much milder measure by working with Congress to enhance the existing review process for foreign investments. However, protecting technology that’s vital for U.S. security and prosperity has long been the center of focus for President Trump’s trade war.
How much power does China have in retaliating against the U.S.? Much of the focus has been given to the total trade volume and the Chinese government’s power to limit U.S. investments and operations in China. That is not enough. To fully understand China’s retaliation power, we also need to understand its own economic condition. According to one Chinese finance scholar, trade war aside, China is reaching its Minsky moment; it is in no position to retaliate against external forces when its internal economic organs are already unstable. Let’s take a look.
He Jiangbing is a Chinese scholar and author of two books on the Chinese economy. He believes that China is facing its Minsky moment. Minsky is named after American economist Hyman Minsky, who anticipated when financial bubbles would burst.
He Jiangbing identified three factors that indicate the bubble will burst soon. Using 2016 data, China’s total debt is 350% of its GDP. Any level above 200% raises major concerns. Additionally, the Chinese real estate market’s total value is estimated to be between 40 trillion to 400 trillion dollars, a large range and yet a behemoth even if reality falls on the most conservative spectrum of this estimation. Currency is the third area of concern. By March of this year, Chinese money supply reached 174 trillion yuan (RMB), That’s larger than U.S. and European money supply combined.
Narration: The heart of the issue is still on housing. It is a segment within the Chinese market that ties up a large amount of wealth. Even with the money supply increasing, much of the liquidity isn’t readily available for other segments in the economy. The Chinese economy’s structural issue is that industries cannot compete with real estate on investment return. In 2017, requirements on down payments for a second home or investment property increased 60%-80%. This shows how difficult it is to tame the market and to curb speculation and excess leverage. Earlier this month, the finance community circulated an official document entitled, “Be Warned about Financial Panic.” The article was published by the office of National Finance and Development, an entity that’s recognized by the Chinese government. It identified issues of money supply continuing to rise in May, signs of debt default rising and liquidity drying up for corporations as key concerns. The article was taken offline and the reason cited was that it was only meant for internal discussion purposes. At least we know, in the Chinese market, officials are concerned about a financial panic. Unless the housing bubble and structural issues can be resolved, China’s willingness and ability to truly fight a trade war is questionable.
萧茗（Host/Simone Gao）：6月19日，在金正恩与川普总统举行具有里程碑意义的峰会后一周，在中美贸易冲突不断升级的情况下，他又回到北京与习近平会面。7月1日，新的卫星图像显示，朝鲜正在完成一个主要导弹制造厂的重大扩建。 北京可能对朝鲜此举再次发挥了作用，但它是否能阻止川普对中国的惩罚性贸易措施的升级？请继续关注。《世事关心》将对此为您带来独特的视角，以及您在其它任何地方都看不到的更多信息。 您可以搜索〝Zoomingin with Simone Gao〞来找到我们。感谢您的收看，我们下周见。
On June 19, a week after Kim Jong Un’s landmark summit with President Trump and amid an escalating trade conflict between China and the U.S., he returned to Beijing to meet with Xi Jinping again. On July 1, new satellite imagery indicates that North Korea is completing a major expansion of a key missile-manufacturing plant. Beijing probably played a role in this, but will it deter President Trump from escalating punitive trade measures against China? Stay tuned. 《Zooming In》 will bring you unique perspectives on this and more that you won’t see from anywhere else. You can find us by simply searching for 〝Zooming In with Simone Gao〞. Thanks for watching and see you next week.
Producer: Simone Gao
Writer: Simone Gao Jess Beatty Michelle Wan
Editors: Julian Kuo Frank Lin
Narrator: Rich Crankshaw
Translation: Greg Yang Frank Yue Bin Tang
Cameraman: Wei Wu
Special Effects: Harrison Sun
Assistant producer: Bin Tang Sherry Chang Merry Jiang
Host accessories are sponsored by Yun Boutique
美东： 周二: 21:30
美西： 周二: 21:30
旧金山： 周二： 22:00