Rep. Erik Paulsen (R-Minn.) and his Republican colleagues have begun work on a tax reform bill that they hope to pass by the end of the year. But the reforms threaten to grow the federal deficit and lighten the tax burden on corporations and the upper class.
Tax reform — like all major legislative initiatives these days — is a touchy and highly polarized subject. In addition to partisan political opposition, tax reform faces pushback from business and corporate lobbyists who will fight for additional credits, exemptions, and deductions. Earlier this year, Paulsen backed off a proposed tax on imported goods after Target — Paulsen’s former employer — and Best Buy, both of which are major Minnesota-based companies, opposed it. The companies argued that the tax would hurt their bottom line.
The development of a tax reform bill follows several high-profile legislative failures for President Trump and the Republican Party. Despite holding a majority in both houses of Congress, the Republicans failed to reach a consensus last month on their long-running project to repeal and replace Obamacare. While they badly need a win on tax reform, it’s possible that they’ll face the same infighting they did on healthcare.
Paulsen’s goals for tax reform legislation are ambitious. In a recent interview with the Star Tribune, Paulsen said, “The key principles are building for growth. New jobs, higher wages.” In an address before the House Ways and Means Committee earlier this year, Paulsen outlined additional goals. “I continuously hear from Minnesota companies about the importance of having major tax reform that is permanent, that promotes investment, that lowers rates,” Paulsen said. “It will boost paychecks, it will increase jobs, and it will grow the economy. Regardless of whether it’s a large or small company, these businesses, and the men and women working there, will benefit from fixing a broken tax code.”
The plan anticipates economic growth as a result of lower taxes to result in additional revenue to pay down the federal deficit. But J. Patrick Coolican of the Star Tribune noted that this approach is worryingly familiar: “This idea undergirded the economic policy of President Ronald Reagan, who promised that lower taxes would stimulate economic activity, leading to higher wages and more income tax revenue. After cutting taxes in 1981, the deficit ballooned, and Reagan signed a significant tax increase in 1982.” Unless the major budget cuts are also enacted, the current tax reform project will yield the same outcome. Today, only about one-third of economists agree that cutting taxes leads to economic growth.
Reactions to Paulsen’s plan have been critical. Brigid Sozik of Bloomington wrote, “Lowering taxes on businesses and the wealthy is proven to do nothing but make the rich richer. It has not and never has created jobs.”
Wesley Sisson of Hermantown suggested that Paulsen’s tax plan lacked crucial citizen input, saying “When he starts holding town halls to listen to his constituents, that’s when I will start paying attention.”
Erik Paulsen’s tax reform project is based on kowtowing to powerful corporate interests and clinging desperately to outmoded economic theories. Is this really the best our wonky “numbers guy” can come up with?