Economic October News

With the yield curve flattening for bonds, even as stock markets rally to new highs, it could be a warning signal of a recession, but others argue it might have more to do with Fed reversing long-term quantitative easing policies. Residential real estate could take a hit as natural disasters combined with the shortage of labor and materials is placing a burden on new home construction. First indication of that was the drop in housing starts last month.
Cutting Corporate Tax Rate To 20% Would Boost Workers’ Income: Cutting the U.S. corporate tax rate to 20% from 35% would, “very conservatively,” boost average household income by $4,000 a year, White House economists said in a report. The study, which comes as the tax-policy debate heats up in Congress, stakes its argument on the idea that corporate taxes hurt workers by inhibiting capital investment, hiring and wage growth. “There’s lots of evidence that wages respond to changes in corporate taxes,” Kevin Hassett, chairman of the White House Council of Economic Advisers, told reporters. Many economists, however, say a corporate-tax cut would mostly benefit shareholders, not workers. The $4,000 wage increase would occur over a few years as companies invest more in the U.S., boosting productivity and then wages, Mr. Hassett said. That would be on top of average household income—or the total income divided by the number of households—of about $83,000. The pay gain for the $53,000-a-year median household, which is the level at which half of households earn more and half earn less, would be closer to $3,000. The administration is essentially arguing that cutting the corporate tax rate is so powerful that the wage gains could be larger than any forgone tax revenue, though the outcome would depend on other factors. This suggests that most gains to workers come through a larger economy. The report doesn’t address possible countervailing forces, such as whether financing a tax cut with budget deficits would crowd out private investment and drive up interest rates.