Paul Ryan and his minions in the House like Erik Paulsen have held their noses against the stench of Donald Trump to blindly pursue their supply-side trickle-down economics ideology. If Trump was willing to sign their legislation cutting taxes for corporations and the wealthy, they were willing to put up with Trump’s most egregious behavior and policies. Even leaving aside the obscene immorality of furthering economic inequality, such tax cuts were always a bad idea. Democrats and the clear majority of economists noted that the Republican tax plan would not “pay for itself” with increased growth as Republicans claimed, that corporations would most likely use their tax breaks for stock buy-backs rather than investing to modernize and increase productivity or by paying more to employees whose wages have been mostly stagnant for years. They argued that both deficits and economic inequality would increase because of the trickle-down tax bill.
But Republicans rejected those arguments and shot down a provision that would have triggered an automatic tax increase if their outlandish economic growth predictions did not materialize. That refusal to implement a fail-safe mechanism tells us they really didn’t care whether their plan was based in reality - they just wanted their tax cuts, come what may.
Well, the data is starting to come in and guess what? Critics of the Republican tax plan were right.
On April 9th, the Congressional Budget Office released a report which concluded that the deficit is rising sharply and will surpass $1 trillion per year by 2020. The CBO Budget Director said “federal debt is projected to be on a steadily rising trajectory throughout the decade.” The loss of revenue due to the Republican tax bill will be $1.3 trillion from 2018 to 2028 and when the costs of paying interest on that debt are included, the total addition to the deficit due to the Republican tax bill comes to $1.9 trillion. The increase in the interest payments just on the increased debt from the tax bill is about what we currently spend on the military. Republicans had claimed their proposal would spark massive growth that would limit or even eliminate growth in the deficit. However, the CBO projected that the bill would boost economic growth by only 0.7% over a decade - not nearly enough to keep it from adding to the debt. After the report came out, Republican Senator Bob Corker said, “If it ends up costing what has been laid out here, it could well be one of the worst votes I’ve made”. Other countries are using the comparative calm we are in now after the 2008 financial storm to pare back their deficits. The International Monetary Fund has projected that the United States is the only advanced economy in the world expected to have its debt burden get worse over the next five years.
And what about the critics’ claims that corporations would most likely use their windfall tax breaks for stock buy-backs that further enrich executives and investors rather than for productive investments? Buy-backs have been increasing since the tax cut was passed in December and in February reached a monthly record of over $150 billion. Analysts expect buy-backs this year to exceed a high mark of $589 billion per year set in 2007, just before the crash of the Great Recession. To the extent those buy-backs benefit any one, they will benefit those already wealthy and thus further increase economic inequality which is at record levels now.
Deficits are not necessarily bad and in fact under some circumstances are necessary to finance national priorities like waging a necessary war or pulling the country out of an economic recession. Our largest deficits as a percentage of GDP were for military spending during World War II and after 2008 to pull us out of the ditch of the recession. But to pile on national debt now, at a time when it is not necessary, to hand out tax breaks that primarily benefit the wealthy and corporations is a very bad policy and the height of hypocrisy for politicians like Erik Paulsen who claimed to be so concerned about increasing the deficit when they opposed Obama’s policies that brought us out of the Great Recession. We need a Representative who will do what’s right for the country and all of us, not just hand out goodies to the well-heeled and corporations based on flawed trickle-down economics ideology which has failed every time it has been tried before.
Replace Erik Paulsen.
If you want to witness how hypocrisy is at the core of our Representative’s messaging ever since he got elected to Congress, go to Erik Paulsen’s website and search for “Deficits”. That search turns up dozens of Paulsen’s blog posts and press releases before Trump was elected in which Paulsen is critical of virtually anything that increases the deficit. Or you can watch the video of a Paulsen town hall meeting in 2010 where he led off with a lecture about the evil of deficits, saying it was one of his biggest concerns. But now that Republicans are in power, he voted for massive tax cuts for corporations and the wealthy that will blow up the deficit because of his belief in the discredited theory of trickle-down economics. Perhaps we shouldn’t be surprised. Right-wing Republicans have been playing this game since Reagan. They like to call Democrats the “tax and spend party,” but we now know they’re the “cut taxes and spend party.”
Republican strategists believe that putting their best spin on the tax plan is key to avoiding a bloodbath in the 2018 mid-term elections. They are hoping they can fool voters who aren’t paying attention by doling out short term and very modest tax cuts for the middle class that obscure the fact that the trickle-down “Tax Cuts & Jobs Act” is bad public policy. The GOP tax bill, which was championed by Paulsen, overwhelmingly favors the wealthy and corporations and in the long run will likely do great harm to our economy and further increase economic inequality. Recent polling indicates that the Republican defensive public relations strategy on their tax plan is working because support for the tax bill now stands at 51%, up from 37% in December.
Republicans claim that the tax cuts mean more money for middle-class voters and some of them of those voters are already seeing modest withholding adjustments that, for now, boost their take-home pay. For middle-income households earning $49,000 to $86,000, the average tax cut will be about $900 this year. Republicans are counting on middle class voters not recognizing that: a) their average tax cut is less than 2% of the $51,000 average tax cut for those earning more than $733,000; b) the tax cut is only temporary; and c) as a result, in later years, about two thirds of middle-class taxpayers will actually see a tax hike. Moreover, as we pointed out in an earlier blog, the Republicans’ elimination of deductions for state and local taxes is a particular blow for all Minnesotans and especially to Paulsen’s constituents in the Third Congressional District, half of whom claimed that deduction in 2016.
Paulsen and his fellow Republicans also claim that corporations are sharing money from their huge windfall tax cuts with workers and point to a list of over 100 corporations that are giving employees more money due to the cut in corporate taxes. Paulsen has made regular social media posts on this topic, As it turns out, some of those bonuses are more PR than substance. Walmart, for example, announced it would be giving bonuses up to $1000 to workers. However, workers only get $1000 if they’ve been working for Walmart for 20 years and the average worker will only receive about $190. More importantly, the amounts corporations are spending on increased employee compensation pales in comparison to what they are giving to corporate executives and well-heeled investors through stock buybacks. The evidence so far, as Democrats expected, is that corporations are spending most of their windfall on buying their own stock rather than on bonuses, wage hikes, or even on capital investment. Stock buybacks are good for shareholders, especially top executives who often own significant shares of their companies’ stock and buybacks increase the price of those shares. In comparison, various corporations have thus far announced about $6 billion in bonuses for employees versus more than $170 billion in stock buybacks. In other words, to date, the increased compensation corporations are giving to employees as a result of their tax windfall is only about 3.5% of what they’re spending to buy back their stock. The vast majority of the billions of dollars spent on stock buybacks will benefit the richest 10% of American households who own 84% of all stocks and especially the top 1% who own about 40% of all stocks.
Finally, Republicans claim that their trickle-down tax plan will pay for itself because the extra money going to corporations and the wealthy - paid for by increasing the deficit - will be invested and grow the economy. But that premise of supply side/trickle-down economics has failed every time it has been tried since the Reagan administration and there is no reason to believe it is going to work now. The overwhelming consensus of economists is that the tax cuts will not pay for themselves. Now even Steve Mnuchin’s Treasury Department admits that the Republican tax plan will not pay for itself.
So, Erik Paulsen and his fellow erstwhile Republican “deficit hawks” have sacrificed the good of the country and the future of our children and grandchildren to line the pockets of large corporations and the wealthy in yet another misbegotten attempt at trickle-down economics. As Albert Einstein once said, “The definition of insanity is doing the same thing over and over again but expecting different results.”
We need to replace Paulsen and elect a Congressperson who we can trust to represent the majority of voters in Minnesota’s Third District.
If you like the work we do, please consider donating to Minnesotans for Real Representation. Minnesotans for Real Representation is staffed by volunteers. All donations support our efforts to replace Paulsen in 2018.
There have been numerous demonstrations calling for Rep. Erik Paulsen to hold town hall meetings but he’s refused. We recently found a video recording of a town hall meeting Paulsen held on August 2, 2010 courtesy of Michael McIntee. After watching that, it’s easy to understand why Paulsen doesn’t hold town halls; he’s awful. It almost makes you feel sorry for him, until you realize that what makes his performance so abhorrent is his blind adherence to conservative memes that primarily benefit businesses and the donor class but penalize the middle and lower classes and increase economic inequality.
In light of the recent vote on the $1.5 trillion Republican tax plan that will increase the national debt in order to give tax breaks to large corporations and the donor class, his 2010 town hall meeting was almost laughably ironic. He claimed then that the most difficult problem facing the country was the projected increase in the national debt. One constituent astutely pointed out that we need taxes to pay for our schools, roads and so much else that contributes to our quality of life and noted that if Congress let the Bush tax cuts expire and returned to the higher level of taxes that existed during the Reagan administration, the national debt problem would be less. Paulsen responded that he didn’t want to terminate the Bush tax cuts because that would “punish” businesses and ruin economic growth. In fact, the evidence shows that to be false. As noted in an earlier blog, in 2012, the nonpartisan Congressional Research Service published a report that flatly contradicted the conservative ideology that lowering tax rates boosts economic growth.
At the 2010 town hall, Paulsen was also confronted by a constituent who said that people voted for him because they thought he was a moderate but that after being elected, he has acted as a conservative ideologue. See the video at 38 minutes, 52 seconds. Paulsen denied the claim, saying “I vote what’s right for the district . . . based on constituent feedback”. That is also demonstrably false.
As noted in our last blog, the day before Paulsen voted to repeal and replace Obamacare on May 4, 2017, the Minneapolis Star Tribune published a poll showing that residents of Hennepin County, Paulsen’s constituents, overwhelmingly supported Obamacare and opposed repeal and replacement of the law. Paulsen knew or should have known of those poll numbers and he’d previously gotten an earful of “constituent feedback” from the protests against repeal and replacement right outside his office window.
Paulsen’s vote for the House Republican tax plan was clearly not what’s right for the district. Lori Sturdevant pointed out in a recent Star Tribune Op-Ed that the House bill’s elimination of the long-standing deduction for state and local taxes is a particular blow for all Minnesotans and especially to Paulsen’s constituents in the Third Congressional District because half of us claimed that deduction in 2016. According to an article by the Hennepin and Ramsey County Commissioners, the loss of that deduction puts pressure on state and local governments to spend less on education for our children and grandchildren, on infrastructure which all of us use, and the social safety net for those who cannot help themselves. Those public resources, paid by taxes, of value to us all, are what make our communities thrive. As Oliver Wendell Holmes, Jr. said ”Taxes are the price we pay for civilization.” Eleven Republican Congressmen from other high tax/high services states refused to vote in favor of the House bill when they saw how it would adversely affect their constituents. But Paulsen voted against the clear interests of his constituents to support a conservative ideology that has never worked to the greater good of us all.
Rep. Erik Paulsen has, of course, voted for the Republican tax plan and, despite all the evidence to the contrary, falsely claimed it“is geared absolutely toward middle-income folks”. Most economists believe that the Republican tax plan is in fact skewed in favor of the wealthy and polling shows that the voters likewise believe it disproportionately benefits the rich. The GOP bill is one of the least popular tax plans since the Reagan administration. Its passage will likely harm the U.S. economy in the long run and may well be the downfall for Republicans like Paulsen who supported it come November 2018.
The majority of American voters are absolutely right to be very concerned about the Republican tax plan. By 2027, people making $40,000 to $50,000 would pay a combined $5.3 billion more in taxes, while the group earning $1 million or more would get a $5.8 billion cut, according to the Joint Committee on Taxation and the Congressional Budget Office. That only increases the already abysmal economic inequality in this country. Such a sacrifice by the lower and middle class might be tolerable if, in the long run, the plan produced the economic growth Republicans claim it will. But in a recent survey of thirty-eight economists by the University of Chicago, only one said the proposed tax cuts would yield substantial economic growth and all said the cuts would add to the long-term federal debt burden. Edward D. Kleinbard, a former chief of staff at the Congressional Joint Committee on Taxation who now teaches law at the University of Southern California was recently quoted in the New York Times as stating: “It’s not aimed at growth. It is not aimed at the middle class. It is at every turn carefully engineered to deliver a kiss to the donor class.” Indeed, before the vote, Republican Rep. Chris Collins of New York told reporters, “My donors are basically saying get it done or don’t ever call me again.”
Tax cuts that will balloon the federal deficit is only the first step of what the Republicans have in mind. Republican’s will now say that the increased federal deficit—which they increased with this tax bill favoring the wealthy—will require cuts in federal spending. And where will they make those cuts? In social safety net programs, of course. Even before the vote on the tax bill Senator Marco Rubio called for offsetting tax cuts by reducing Social Security and Medicare benefits, something Republicans have been dreaming about for decades. They’re like an evil Robin Hood in reverse—steal money from the poor and the middle class to give to the rich—and then take away Social Security and Medicare benefits to pay for the shortfall in the deficit.
The Republican tax and budget plans mirror what was tried (and failed) in Kansas under Republican governor Sam Brownback. In 2012, Republican majorities in Kansas embarked on a “march to zero” for the state’s income tax, eliminated taxes on businesses whose owners filed their taxes as individuals rather than corporations (the so-called “pass through” tax break). This was supposed to spark economic growth and trickle-down benefits for everyone but the growth never materialized, the legislature did not cut spending to match the lower revenue, Kansas ran up hundreds of millions in annual deficits and the state has been in a continuous budget crisis. Republican Kansas state legislators warned Washington it should heed what happened in their state. But Washington Republicans, including our own Rep. Erik Paulsen, were blinded by their trickle-down ideology and went ahead to satisfy their donors.
An interesting article in the Washington Post by Robert McElvaine, a historian who studies the Great Depression should have given Republicans pause before they voted their plan into law. McElvaine believes that the present GOP Tax Bill is straight out of 1929 and will push the economy off a cliff. What are the similarities between the politics and economy of the 1920’s and today?
Then, as now, we have Republican control of government with trickle-down policies providing massive tax cuts for the already rich, a push for de-regulation of business in general and Wall Street in particular and an already over-priced stock market. Below is a graph of Robert Schiller’s "cyclically adjusted price-to-earnings ratio" (CAPE ratio) for the U.S. Stock market. Note that there are only two times in history when the CAPE ratio has been this high—in October 1929 and at the height of stock market in 2000 just before the tech bubble burst.
History doesn’t repeat itself, but it rhymes. And business cycles are real. If there is an economic downturn in our near future, can you imagine what it would be like under the leadership of Donald Trump and our present Republican-controlled House and Senate?
We need to change the direction of our country and our politics. We can help do that here in the Third Congressional District by replacing Erik Paulsen who whole-heartedly supports trickle-down economics.
A lot of people think Rep. Erik Paulsen is a "Minnesota Nice," moderate Republican. But as the Republican Party has moved farther and farther to the right, we’ve seen Paulsen follow right along. While his votes should represent a district that voted for Hillary Clinton in the 2016 general election by a substantial margin, a closer look at both his supporters and his votes reveals that he is not just conservative, he is an ideologue for his party.
Despite the fact that Paulsen claims he did not vote for Trump in the 2016 election, to date he has voted in favor of the Trump agenda 98.1% of the time. This is clearly out of step with the views of the majority of citizens in the Third Congressional District who voted for Hillary Clinton.
Paulsen’s American Health Care Act Votes
Paulsen’s support of the Trump agenda includes his vote in favor of the Republican-sponsored American Health Care Act (repealing Obamacare), despite the fact that only 17% of Americans supported it. Moreover, he made that vote before the Congressional Budget Office had an opportunity to evaluate how many millions of Americans would lose their health insurance. Paulsen didn’t care what the number was—which turned out to be tens of millions of people—because he, like other conservative House Republicans, simply did not care.
Repealing the Stream Protection Act
Supporting the Trump agenda, Paulsen also voted to repeal a regulation which protected thousands of miles of streams from coal mining debris (see also Vox.com),
Allowing the Mentally Incompetent to Buy Guns
He also voted to disapprove a common sense rule submitted by the Social Security Administration that would have placed restrictions on gun purchases by individuals who have been deemed so mentally incompetent that they are unable to manage their own federal benefit payments. Allowing the purchase of guns by mentally incompetent people to satisfy the extreme NRA agenda is out of step with the sensibilities of Minnesota's Third Congressional District.
Selling Consumer’s Internet Privacy
Paulsen also voted to disapprove a rule submitted by the Federal Communications Commission protecting the privacy of customers of broadband and other telecommunications services. This bill was so contrary to common sense Minnesota values that even the Republican-controlled Minnesota State Legislature shortly thereafter enacted a state law to protect Minnesota consumers.
Protecting Donald Trump
Seventy-five percent of all Americans and even a majority of Republicans believe Trump should disclose his tax returns, as has every other President since Richard Nixon. Still, Paulsen has repeatedly voted along party lines in the House Ways and Means Committee to help shield Trump’s tax returns from public view (see articles in The Atlantic & City Pages).
Paulsen’s Links to the Koch Brothers
In retrospect, we shouldn’t be surprised at Paulsen’s extremism because the signs were there all along. When he was a Minnesota state legislator he was a member of the right wing American Legislative Exchange Council (ALEC), funded by the Koch brothers and other CEOs, and today ALEC proudly claims him as an alumnus. He has continued to receive political contributions from the arch-conservative Koch brothers as recently as September 2017.
Support for the Tea Party
At a January 12, 2012 Tea Party event, Paulsen was secretly recorded saying, "Two years ago you wouldn't have seen the Tea Party Groups that are cropping up. And now they’re here and WE'VE got to keep them here and WE have to keep the energy and passion alive". See this CD3 YouTube video at 1:00:26 . The majority of voters in the Third Congressional District has never been in favor of the extremist Tea Party or identified with it.
Paulsen’s Ratings Speak for Themselves
It’s also informative to consider the evaluations of Paulsen’s record available at Votesmart by organizations on both the left and the right of the political spectrum. For example:
Why does Congressman Erik Paulsen support the right wing trickle-down agenda? No, it’s not because he’s being forced by Darth Vader. It’s worse than that; he’s a true believer. When Paulsen was a Minnesota state legislator he was a member of the right wing American Legislative Exchange Council (ALEC), funded by the Koch brothers and other CEOs. ALEC often promotes state legislation that benefits corporate profits at public expense. Now that Paulsen has moved on to the U.S. House of Representatives, ALEC proudly claims him as an alumnus and he has continued to receive political contributions from the Koch brothers as recently as September 2017.
Paulsen is a member of the House Ways and Means Committee which is largely responsible for the House tax plan and appears to believe that trickle-down, supply side economics—i.e., reducing top tax rates for wealthy individuals and corporations—will lead to economic growth ultimately benefiting everyone.
But does trickle-down economics work the way conservatives claim it does? No. It is a myth conservatives have been pushing for decades. In fact, the “voodoo economics” of trickle-down supply side theory has been tried repeatedly since the Reagan era and has failed every time. The reality is that we all do better when we all do better—not when we structure taxes to primarily benefit the wealthy expecting that will somehow trigger growth.
In 2012, the nonpartisan Congressional Research Service published a report that flatly contradicted the conservative ideology that lowering tax rates boosts economic growth. The report concluded:
“The reduction in the top tax rates appears to be uncorrelated with saving, investment and productivity growth. The top tax rates appear to have little or no relation to the size of the economic pie. However, the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution.” P.16
The Republican response was to force the withdrawal of the report against the advice of the agency’s economic team leadership. But the facts and evidence keep bubbling up. In 2014, a study by the National Bureau of Economic Research similarly concluded there was little evidence that corporate tax cuts boost economic activity. And more recently, a 2017 survey of business leaders by an international accounting firm found that 77% would not invest any windfall gains from tax cuts on growth more jobs or higher wages. Instead a large majority said they would use tax savings to pay higher stock dividends and for stock buybacks. Why are corporations so interested in paying higher dividends and buying back corporate stock? Because stock-based instruments make up the majority of executive pay and buybacks drive up stock prices, thus increasing executive compensation.
Unfortunately, enriching executive pay instead of reinvesting profits into growth has been a pattern of corporate behavior for decades, and has fueled the current economic inequality which is at record levels. As documented by economist William Lazonik in Harvard Business Review, until the late 1970’s, S&P 500 companies used to reinvest about half of annual profits in expanding their business, funding research and development, retraining workers and paying them more and paid the other half of profits to investors. However, from 2003 to 2012, 91% of profits went to investors and shareholders but only 9% of profits were allocated to growth. As a result, the compensation of top U.S. executives has doubled or tripled since the first half of the 1990’s while overall U.S. economic performance has faltered and economic inequality has soared.
Despite the fact that American voters say the Republican tax plan favors the rich at the expense of the middle class, Rep. Erik Paulsen is fully on board with raising taxes on most individuals in the middle and working classes and adding around 13 million Americans to the ranks of the uninsured, all to pay for big cuts in corporate taxes.
One of Paulsen’s colleagues on the House Ways and Means Committee, Republican Rep. Chris Collins of New York told reporters, “My donors are basically saying get it done or don’t ever call me again.” Do you suppose Charles Koch said that to Erik Paulsen?
Minnesotans for Real Representation is a grassroots organization in Minnesota's Third District with the goal of replacing Erik Paulsen in 2018.