Paulsen, emboldened by full GOP rule but skeptical of Trump, tries to shape federal tax reform

WASHINGTON – After eight years in Congress, U.S. Rep. Erik Paulsen finds himself in what should be ideal circumstances to finally accomplish the big goals that have driven his political career: full Republican control of Congress and a Republican in the White House.

Instead, he is juggling the polarizing priorities of President Donald Trump — for whom he did not vote — while trying to help shape a tax reform initiative being put forward by some of his closest allies in Congress in a move that has him at odds with two of the state's high-profile companies.

"[T]his is actually a time to be able to propose ideas and see them signed into law," said Paulsen, who represents the Third District that holds many of the Twin Cities' western suburbs.

He's discovering that could be tougher than it sounds.

As a member of the influential House Ways and Means Committee, Paulsen is in the middle of a heated debate over a sweeping tax overhaul plan put forward by the committee's GOP chairman — who also happens to be Paulsen's Washington, D.C., roommate. It would boost U.S. taxes on imported goods, which Minnesota retailers Best Buy and Target say would be a huge blow to their respective bottom lines.

Paulsen is supporting the so-called "border adjustment tax" with reservations, even as the Target and Best Buy CEOs mount a public bid to stop it.

At the same time, Paulsen is at odds with major facets of the new president's agenda. He doesn't support building a wall along the Mexican border and doesn't want taxpayers paying for its projected multibillion dollar cost. And he is adamantly opposed to repealing the Affordable Care Act unless a replacement is in place, putting him at odds with many of his fellow House Republicans. On Thursday, Paulsen unveiled a new proposal to simplify and expand options for Americans to make tax-deductible contributions to health savings accounts.

But it's the border adjustment plan that promises to test his ability to shape legislation that is of consequence to important constituents, on an issue — tax reform — that has long been one of his principal legislative interests. He says he's hoping for a "win-win," even as he acknowledges that retailers are not pleased.

"I personally, I want to make sure we go down the direction of increased tariffs and increased border taxes. It keeps the tax system from tilting the playing field," Paulsen said.

Republicans first released the border adjustment plan last year, proposing to levy new taxes on imports while lessening the tax burden on exports. The goal is to incentivize buying American, but it also would disproportionately affect certain retailers that rely on imports to fill their stores with items like clothing and electronics.

Representatives for those companies say the added cost would land directly on consumers.

"We fundamentally believe this is a consumer tax, one that will force consumers to pay 20 percent more for the products they need," said Brian Dodge, of the Retail Industry Leaders Association, which is about to launch television ads across the country to talk about the border adjustment proposal. "We view this as an education campaign because we believe once people understand this is a tax on consumers, they will recognize that it is unacceptable."

Paulsen said he's taking the feedback from his district seriously. He said he's met with dozens of business owners on Capitol Hill and has offered to get them directly in touch with Rep. Kevin Brady, the Ways and Means chairman who's also his roomie. It's hard to pull off large-scale tax reform without irking someone, Paulsen said.

Paulsen argued that if imports are taxed, the U.S. dollar eventually would grow stronger, making it easier for companies like Target to absorb the cuts — a claim the companies say is not true.

Robert Kudrle, a University of Minnesota professor who specializes in international trade, said he sees on paper how the tax adjustments could boost the dollar. But he said negative effects also might be felt if other countries started retaliating against the U.S.

"The problem is you can't predict what a major change in U.S. policy like this will do or how other people will react," Kudrle said. "It can be quite destabilizing to the world economy."

Asked whether he supports increasing the cost of consumer goods — everything from oil and gas to pharmaceuticals to school supplies could be affected — Paulsen said, "We want to make sure it's a soft landing."

The Senate is cooler to a border adjustment tax, and the White House has given mixed signals. Trump, who met with retail industry leaders this week and heard them slam the idea, called it too complicated.

Sen. Amy Klobuchar, a Democrat who has worked with Paulsen on other initiatives, said she was all in favor of "well-crafted incentives to keep jobs and revenue in our country" but was concerned about border adjustment because of the costs being passed along to consumers.

"This proposal came from the House, and the Senate will be working on alternative ideas," she said.

Paulsen's free-trade politics are at odds with broader Trump administration rhetoric. The president has said he wants to renegotiate NAFTA. He quickly tossed out the Trans-Pacific Partnership, an Obama trade agreement proposal with Asian nations that Paulsen endorsed, and said he won't get into further trade agreements without putting America first.

Paulsen, who wrote in Florida Sen. Marco Rubio for president last November, called those stances worrisome. He said the best way to advance American interests in the global economy is to be a major player rather than pulling away.

"We can keep the momentum going so China doesn't fill the vacuum," Paulsen said.

Charlie Weaver, executive director of the Minnesota Business Partnership, said he has pushed Minnesota's delegation, including Paulsen, to resist Trump on trade.

"Mostly, we've emphasized that tearing up NAFTA would be devastating to Minnesota companies," Weaver said. "This is a global economy. Protectionism is not good for the economy and it's not good for jobs in this America. It doesn't work."

Vin Weber, a former Minnesota congressman and now a Washington lobbyist, called the tax reform conundrum a big problem for Republicans.

"[T]ax reform is a central promise of the president and the Republicans in the House and they have to do it," Weber said. "They've made a lot of promises, but now they have to figure out how to reconcile those promises."

Allison Sherry • 202-662-7433