WASHINGTON – Minnesota Republicans in Congress enthusiastically pitched their tax proposal to voters back home Thursday, vowing it would jump-start the economy while reducing the cost of living.
“It’s going to help small business, it’s going to increase paychecks, and it’s going to make sure we have a growing competitive economy so our American headquarters can also stay in Minnesota and hire more people,” Rep. Erik Paulsen said. A member of the tax-writing Ways and Means Committee, Paulsen went all in on what his office touted as a “once-in-a-generation tax reform bill.”
Republicans say the proposal they’ve named the “Tax Cuts and Jobs Act” would benefit Americans at all levels, and spur economic growth by cutting the corporate tax rate from 35 to 20 percent. They say the $1.5 trillion in tax cuts would save the typical household $1,182, much lower than the $4,000 savings touted earlier.
The GOP proposal would end taxpayers’ ability to deduct state income and sales taxes. That would disproportionately affect states like Minnesota, which has one of the highest income tax rates in the nation and where incomes are higher than average.
Paulsen acknowledged “real concerns” with proposals to end deductions for state taxes; he said that’s why Republicans adjusted the proposal to continue to allow people to deduct property taxes up to $10,000, which he said would help seniors who own their own homes.
Democratic Rep. Betty McCollum said many Minnesotans would still lose under elimination of federal deductions.
“Most middle-class families will see virtually no tax benefit, while many Minnesotans will actually see their taxes increase because of the elimination of the state and local tax deduction,” she said in a statement.
Rep. Jason Lewis, a Republican, said that a tax code full of state and local deductions ends up pushing federal tax rates higher.
“The more tax credits we load up, then we say whoops, we’ve got to raise up the rate because we’re losing all this money on the side ... we’re trying to broaden the base so people make their decisions on good economics and not the tax code,” Lewis said.
He praised the GOP’s plan to double the standard exemption to $24,000 as a boon to families, and said that it would still allow taxpayers to come out ahead without having to itemize.
In a sign of how politicized the effort will be a year from the 2018 elections, Lewis’ DFL challenger Angie Craig quickly lambasted the GOP proposal as a “giveaway to big corporations and the rich, paid for by tax increases for the middle class.”
Dale Busacker, who directs the state and local tax practice at the Minneapolis offices of Grant Thornton, said that ending state and local deductions would make Minnesota’s high taxes more visible to taxpayers and thus harder for public officials to defend.
He said keeping the interest deduction for mortgages of $500,000 or less on itemized returns, down from the current threshold of $1 million, “should help the middle class.”
The Committee for a Responsible Federal Budget, which counts former Rep. Tim Penny, D-Minn., among its board members, took issue with how much the tax plan will add to the national debt.
“This new debt is likely to slow economic growth and hasten the country’s financial deterioration,” the group said in a statement.
Paulsen said that doubling the standard deduction and increasing the child tax credit would also help many middle-class families, and that eliminating the alternate minimum tax offers savings for many Minnesotans. “Overall this is designed to help everyone at every level of income,” he said.
The bill’s first stop is the Ways and Means Committee, with President Donald Trump and congressional Republicans hungry for a major legislative win nearly a year into Trump’s presidency. The Ways and Means chairman and the bill’s chief author is Rep. Kevin Brady of Texas, who rooms with Paulsen in Washington.
When Brady got home late most nights, Paulsen said, they were ready to be done talking about tax policy. “But I always make sure when he pulls up in his duct-taped chair in our small apartment that I provide him a Dilly Bar so he can relax a little bit, relieve a little stress.”
Nan Madden, director of the Minnesota Budget Project, said she’s worried that adding to the deficit would eventually put pressure on lawmakers to cut Medicaid, a contentious provision of Republicans’ failed efforts to repeal and replace the Affordable Care Act. Her organization is working with the Minnesota Council of Nonprofits to write a letter of concern to the state’s congressional delegation, though they’re specifically urging Paulsen not to offset the tax cuts by slashing Medicaid and other programs for low-income people.
“We think every member of our delegation has an important decision to make, but knowing that this bill comes first for a vote in the Ways and Means Committee, that’s a reason for a particular focus on Paulsen,” Madden said.
Star Tribune staff writers Jennifer Brooks and Jim Spencer contributed to this report.