9/29/2017 Paulsen Correspondence Corner : Will Small Business Really “Win” Under Tax Reform ?

Erik Paulsen regularly issues a video Correspondence Corner in which he responds to constituent questions.
It is a great ploy — Congressman Paulsen determines what question is to be answered … thus, providing him an opportunity to portray himself as effectively responding to issues that he wishes to address as if they are the most critical issues that voters want addressed.
The MN Political Roundtable will be evaluating Congressman Paulsen’s responses and encouraging readers to offer their own assessments.

Yesterday’s topic: H.R.3354 – leasing, exploration, and potential development of approximately 234,000 acres of Federal land in northeast Minnesota.

Today’s topic: Small Business and Tax Reform

Before viewing the September 29th edition of the Paulsen Correspondence Corner, let’s look at a tweet from Kentucky’s Republican Senator Rand Paul

Clearly, Senator Paul is not pleased with the direction of the proposed “framework for tax reform”.
But heck, Senator Paul has been concerned about our rising national debt (as have several past Secretaries of Defense, including Trump’s current-Secretary James Mattis, who have raised warnings that the greatest threat to national security is our own federal debt), so you can imagine that knowing that the proposed “tax reform framework” will expand the debt and ask some middle class families to pay more, would be a concern for a real fiscal conservative.

So, middle class may not like what happens to their taxes, but that wasn’t what Congressman Paulsen selected to discuss … he focused on “small business”.

So, Paula of Plymouth might be happy with Congressman Paulsen response … but will she be ?
And what about the rest of us that do not own a small business … will we see tax increases and more jobs ?

Well, the Master Manipulator, Erik Paulsen tells a tale that sounds good for owners of small businesses … featuring 25% tax rate for small business and changes to allow Full And Immediate Expensing (or “FAIE”) of new equipment.

Well, let’s remember that this is only a “framework”, so there is a lot unknown … but some have weighed in.

Like FORBES, in an article entitled For Most Small-Business Owners, The GOP Tax Plan Gets Worse

the plan’s small-business tax cut would likely benefit very few small businesses. That’s because while the plan calls for limiting the tax rate on pass-through business income to 25 percent, it turns out that according to the Tax Policy Center, only about 13 percent of households with business income are currently in a tax bracket above 25 percent.

Let us remember that Small Businesses pay property taxes on business property which is one of the deductions that the “framework” is targeting to eliminate … plus small manufacturing businesses will lose the domestic production activities deduction (Section 199 created by the American Jobs Creation Act of 2004) and other business credits.

Just as individual taxpayers are now hearing that their taxes will go up because of the GOP tax “reform”, small businesses may find that the tax changes really won’t be as beneficial as advertised.

The other aspect of the “framework” that Congressman Paulsen highlighted is the Full And Immediate Expensing (FAIE) which is really not a surprise since Congressman Paulsen had sponsored the 2015 legislation, H.R. 2510 “Bonus Depreciation Modified and Made Permanent”
Under current tax law, businesses are allowed to deduct half the cost of a capital investment in the first year, and then deduct the remaining portion according to the normal depreciation schedule. This provision is set to expire in 2020.
Under the “framework”, qualified capital assets would be fully expensed in the first year … and comes at a cost of over $100 billion in tax revenues per year (aka the national debt will increase since there is no offset.)
When the Joint Committee on Taxation (JCT) looked at the “half-measure” HR 2510, it found that permanent bonus depreciation would boost GDP by just 0.2 percent.
Not much.

Further, JCT wrote :

JCT has estimated the following long-term effects:
“In the second and third decades after enactment, because the bill is expected to result in continuing increases in Federal debt, it is expected to make private borrowing more expensive, reducing investment incentives, and thus reducing the rate of increase in capital stock, GDP, and associated revenues relative to those effects within the budget period.

For the #MathGuy, this should be a concern.

Worse yet, FAIE may actually cause American job losses.
Consider the small business which manufactures and assemblies a product.
As year end approaches, his CPA tells the owner that to cut taxes, he needs to buy new equipment – whether he needs it or not. This is music to owner’s ear as he has already heard how the Chinese have developed robotic equipment that will increase output with less human involvement.
While that may be good in the short-term for the profitable business, it will not help workers and the national debt.

At this stage, we don’t know what the “framework” will produce, but what should be a concern is that the #MathGuy seems to have lost his concern for the rising national debt.
Just reinforces what was stated in the previous commentary — Erik Paulsen wants to fly under the radar, using his mild-mannered appearance to conceal the fact that he votes however the Republican Party bosses instruct him to vote.

The American people expect a tax code that maintains and supports our shared priorities while putting America on a sounder financial footing.
Unpaid tax cuts will doom our future — just ask Secretary of Defense James Mattis.

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