Paulsen: GOP tax plan 'absolutely geared toward middle-income folks'

Congress begins work soon on its next major legislative goal: rewriting the tax code. While Republicans spent the year trying and failing to pass a health care law, they're optimistic about taxes.

Republican leaders released a framework for a tax bill Thursday that calls on Congress to cut the corporate tax rate, whittle the seven current tax brackets down to just three, and get rid of the estate tax. It could be the biggest piece of tax legislation in more than 30 years.

Minnesota Republican Rep. Erik Paulsen, who sits on the Ways and Means committee, will be among the lawmakers working out the details of the tax bill. He spoke with MPR's Cathy Wurzer.

This interview has been edited for length and clarity.

How is this going to be good for middle- and low-income earners?

While the details are going to get filled in, it is geared absolutely toward middle-income folks. We're consolidating those rates from seven down to three.

It's also focused most importantly on small-business growth. A lot of small businesses pay a higher rate, for instance, as an individual, right now. But now, they'll be moved, for the first time in history, to a new category of a 25 percent rate.

It does help high earners, though, because you're slashing the corporate tax rate and you're trying to get rid of the estate tax. Both of those parts of the tax code benefit high earners.

Well, there may be a benefit to a high earner there, but I will say this: I'll talk to a small business owner in Bloomington who's worried about the estate tax basically closing down his entire business, not just because he wants to hand it on to the next generation, but it's the 200 people who work for him that will all lose their jobs when a tax bill comes due because they literally won't be able to pay the tax.

In terms of the corporate rate, the United States is No. 1 in the world for highest corporate tax rate. As a result we've been punishing American manufacturers and American workers. Now we can compete with the lower rate, 20 percent. We're still not the lowest, but we'll be in the average zone.

The tax rates will be winnowed down from seven to three — 12 percent, 25 percent and 35 percent — but it's going to be important to determine the actual income ranges for those brackets. What's the early thinking on that?

The early thinking is that there's also going to be a zero percent rate so the first "X" number of dollars will be at zero percent. And so zero percent isn't really a rate category but there will be a portion that goes down to zero. It's the exact same thing that Democrats supported as part of the Reagan tax reforms. So everyone is kind of moving down a notch.

We're also making sure that we're increasing opportunity for the child tax credit to be more valuable, including expansion for those that are taking care of a senior at home or a parent at home. So that's also another way to help middle-income folks meet some of the challenging needs as care-givers these days.

The administration says it would eliminate most personal tax breaks. If state and local tax exemptions are gone, wouldn't many Minnesotans see their taxes go up?

No, because what we're also doing is doubling the standard deductions. So individuals, average Minnesotans, are going to keep more of their first dollars earned right off the bat. So no longer will 9 of 10 Americans have to pay someone to do their taxes or buy the software to do their taxes. They won't have to itemize, and only a third of Americans itemize right now.

We're designing this so it will be so simple, you can do it on a postcard, you can still get mortgage deductions, still get charitable deductions, still have a combination with property tax, for instance, we're working on those details, and at the same time you can just complete it on a postcard and keep more of your dollars.

But in a higher taxed state like Minnesota, wouldn't that be an issue?

It could be an issue, but as those details get worked out, we're going to make sure there's sort of a soft landing for anyone in these categories because this is designed to making sure that we're lowering middle-class rates, we're doubling the standard deduction, and we're preserving the tax credits that really do help families.

How doesn't this plan blow up the federal debt?

We'll have joint tax committee scoring. It is designed to move toward permanency with balancing the budget so we're actually moving toward a balanced budget. Making tax reform permanent is so important because businesses can plan for the future, they can make long-term investments in the economy. It's one of the reasons why a lot of Minnesotans are either now or at risk of having a lower standard of living than their parents — living paycheck to paycheck.

But when you look at the numbers, how will this not raise the federal debt, at least short term? Wouldn't you have to raise the debt ceiling?

No. Just with the existing slow growth, we're approaching trillion-dollar deficits. If this tax plan passes, those deficits are going to go significantly down, and so we're moving in the direction of actually moving toward a balanced budget.

Growth solves a lot of these other problems. If we don't have growth in the economy, people are going to continue to fall behind and we're going to continue to punish again American workers and manufacturers. This is really about boosting paychecks, which folks haven't seen in a long time.

Click on the audio player above to hear the full interview and political editor Mike Mulcahy provide context about the Republican tax plan.