In Minnesota, the Debate is Over - Tax Reform is Working

Paulsen.jpgIn late August, candidates for Minnesota's third congressional district squared off in the first debate of this election cycle. They repeatedly clashed over whether last year's tax reform has improved the lives of Minnesota workers.

Dean Phillips, the Democratic-Farmer-Labor party nominee, argued that tax reform has mostly benefited the rich rather than average Minnesotans. Republican Congressman Erik Paulsen (right), who helped write the law, said it has boosted economic growth and put money back in workers' pockets.

So who's right? Well, let's look at what has happened across Minnesota since the Tax Cuts and Jobs Act became law in late December.

Previously, the federal corporate income tax rate was a whopping 35 percent. The law dropped that rate to just 21 percent. And it created a special 20-percent deduction for small businesses.
Many companies have used the savings to reward their employees. Dozens of firms have boosted Minnesota workers' pay thanks to the law.

TCF Financial Corporation, a bank headquartered in Wayzata, gave $1,000 bonuses to full-time employees and $500 bonuses to part-timers. All told, the company handed out $5 million in extra pay. Plus, the bank contributed an additional $5 million to its charitable foundation, which supports local non-profits.

Minneapolis trucking firm Koch Companies boosted drivers' wages by 10 percent. Minneapolis-headquartered U.S. Bank increased hourly wages to $15 per hour, gave nearly 60,000 employees a one-time $1,000 bonus, and put an additional $150 million into its nonprofit, which helps fund community programs across the nation.

Other companies have used the savings to hire more employees. CIT Relay & Switch, an electronics manufacturer in Rogers, increased its staff by 10 percent this past January and plans to make additional hires throughout 2018. The firm also gave all employees an extra week's pay at the end of last year.

The new corporate tax rate, which is comparable to the rate in most European nations, will also help prevent outsourcing. The previous 35-percent rate was the highest in the developed world -- and it caused businesses to leave the United States in droves. Had the corporate tax rate been at 20 percent from 2004 to 2016, the country could have prevented 4,700 companies from going overseas. Millions of blue-collar jobs could have been saved.

According to the current population survey (CPS) developed by the US Department of Labor Bureau of Labor Statistics, the unemployment rate for Minnesota fell 0.1 percentage points to 3.0% in July 2018 (the latest month for which this data is available). The state unemployment rate was 0.9 percentage points lower than the national rate for the month.

The benefits of tax reform are here to stay. By lowering the corporate rate, the TCJA will boost long-run U.S. GDP by 2.6 percent, according to a model from the Tax Foundation.

The law also doubled the child tax credit and nearly doubled the standard deduction. Both reforms primarily benefit working and middle-class Americans. The Treasury Department estimates that tax reform will boost take-home pay for 90 percent of all U.S. workers.
State and local tax revenues will rise thanks to TCJA provisions that, for the most part, increase certain people's taxable income while reducing the overall amount of federal tax they owe. That means more money for schools, police, and fire departments across Minnesota.
Across Minnesota, companies are raising wages, doling out bonuses, and hiring more workers. Employees are enjoying fatter paychecks thanks to reduced federal withholdings. And local governments are newly flush with cash.

Erik Paulsen is a member of the Ways & Means Committee, which has jurisdiction over health care, economic and trade policy. It is also the chief tax writing committee in the House of Representatives. Erik Paulsen was one of the chief authors of the Tax Cuts and Jobs Act. He recognized the need for tax reform, and he worked hard to make it happen.

There's really no debate -- tax reform is working.