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.