GOP tax plan adds up to big savings for Minnesota corporations

WASHINGTON – At least 34 of Minnesota's 50 largest publicly traded corporations could enjoy lower tax rates than they did in 2016 under corporate tax cuts in federal tax reform plans proposed in both the U.S. House and Senate, a Star Tribune analysis of securities filings shows.

The tax plan put forth by the Republican majority and endorsed by President Donald Trump cuts the country's statutory corporate tax rate from 35 percent to 20 percent.

The implementation date of the rate reduction is not resolved, with the House wanting it to start next year and the Senate, which rolled out its tax package Thursday, wanting to wait until 2019. A year's wait could cost Minnesota's corporations billions in lost income.

Still, whenever it takes effect, a 20 percent corporate base rate would resonate strongly across the state's diverse economic sectors, a review of annual reports revealed.

It would more than halve the latest effective tax rates paid by industrial spray maker Graco, prescription drugmaker ANI Pharmaceuticals, electronics manufacturer Nortech Systems, investment bank Piper Jaffray, specialty retailer Tile Shop Holdings, and health insurer UnitedHealth Group. Another 19 companies would see their tax rates cut by at least one-third.

"We are in somewhat uncharted territory here since there have never been corporate tax cuts of this magnitude," said Paul Gutterman, a specialist in federal taxation at the University of Minnesota's Carlson School of Management.

Exact tax savings are impossible to compute because effective tax rates vary year to year and because tax reform includes closing some corporate tax loopholes.

Adding to the plans' potential Minnesota corporate windfall is a proposal that would let some of the state's major corporate players pay a one-time, deeply discounted tax on billions of dollars in foreign profits that have been booked outside the country for years awaiting a change in U.S. corporate tax policy.

The cost of so-called repatriation of cash and cash equivalents would be 14 percent in the House bill and 12 percent in the Senate plan. Companies would also be asked to make a one-time payment on nonliquid assets of foreign subsidiaries of 7 percent in the House bill and 5 percent in the Senate plan.

Medtronic has $6 billion in cash and cash equivalents that could be freed up to spend in the U.S. with payment of the one-time repatriation tax, U.S. Securities and Exchange Commission filings show. 3M has $2.35 billion in foreign cash. General Mills has $703 million.

The overall effect of corporate tax reform "will be unprecedented, permanent [increases] to [corporate] incomes, some of them huge," Gutterman said. "What are they going to do with that? The concept that everybody will pay workers more flies in the face of every economic model I know of."

Republican House Speaker Paul Ryan points to the taxes and growth model of the Tax Foundation, a nonpartisan think tank started in 1937 by corporate executives. The foundation concluded that "increased economic growth generated by the [tax] plan would increase federal tax revenue by nearly $1 trillion over the next decade," helping create nearly 1 million jobs and raising "after-tax incomes of all taxpayers … by 4.4 percent in the long run."

While estimates of impact differ, some kind of corporate tax rate cut has bipartisan support because the U.S. has one of the world's highest statutory rates. The Senate's proposed one-year corporate tax cut delay is a maneuver to keep national debt levels low enough to allow a simple majority to pass tax reform in Congress' upper chamber. Otherwise, adding to the national debt could trigger a much more difficult supermajority of 60 votes to close debate on the tax bill.

In any scenario, what individual companies in Minnesota and across the country would do with billions in new revenue is the critical question of the first major overhaul of the U.S. tax system in more than three decades.

Most Minnesota corporations contacted by the Star Tribune declined to comment, saying they needed more time to assess the tax cut proposal.

General Mills' response was typical:

"We are still in the process of evaluating the impact on General Mills and the business sector as a whole," a spokesman said in an e-mail. "We will analyze prospective tax reform legislation … to determine whether we can deviate from our general practice of only repatriating foreign cash in a tax-neutral manner."

Art Rolnick, former senior vice president and research director at the Federal Reserve Bank of Minneapolis, called the corporate response to tax cuts and repatriation "a big unknown" whose impact might be impossible to assess for years.

But Rolnick noted that while tax cuts to businesses once helped labor, recent history shows benefits accrue mostly to stockholders, who are generally higher-income.

"From a working class family point of view," he predicted, "this is not going to [be a] benefit."

Republicans, meanwhile, assume that corporate reactions to lower taxes will drive unprecedented levels of national economic growth that will keep tax reform from adding dangerously to the national deficit, a notion that continues to be a major point of contention.

The Center for a Responsible Federal Budget, a debt-reduction think tank, has called the tax plan "a step backward for fiscal responsibility."

The bipartisan budget center is co-chaired by former Minnesota Democratic congressman Tim Penny, former Republican governor Mitch Daniels of Indiana, and Leon Panetta, who held various positions under presidents Clinton and Obama. It concluded that the corporate tax rate cut and ending the alternative minimum tax adds up to a national corporate windfall of $1.5 trillion over the next decade. Coincidentally, that is precisely the amount that multiple analyses have said the tax plan will add to the national deficit in 10 years.

"You could say they paid for everything else but the corporate tax cut," said the budget center's senior vice president and policy director, Marc Goldwein.

Wringing enough expansion out of the economy in 10 years to fill a $1.5 trillion hole will be a stiff challenge, Goldwein believes. The tax plan for individuals and businesses would have to add four-tenths of a percent to the country's gross domestic product each year to make the math work.

"Three-tenths of a percent," said Goldwein, "is the highest [projection] I've seen."

Rolnick, who teaches at the U's Humphrey School of Public Affairs, reached another conclusion about members of Congress and the Trump administration: "My guess is they are going to live with more debt."