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5/7/2017 7:29:00 PM
Business leaders hope tax cuts spark Northwest Indiana economy

Joseph S. Pete, Times of Northwest Indiana

President Donald Trump is proposing sweeping tax cuts that would slash federal taxes for corporations and small businesses to 15 percent, reduce tax brackets to three from seven and cut the top individual income rate to 35 percent, down from 39.6 percent.

Region business leaders hope such cuts could spur the local economy, freeing up more money for business investment and goosing consumer spending. But they are taking a wait-and-see approach to what actually emerges from Congress, and some are skeptical that it ultimately would have much of an impact.

"U.S. Steel operates in a capital-intensive industry, thus tax code reforms could free up important financial resources for companies like ours to reinvest in our businesses and our employees," U.S. Steel spokeswoman Meghan Cox said.

"The precise impact of possible tax reform on our industry and on individual companies like U.S. Steel is hard to predict until more specific information is known. However, a priority for reform should be boosting American manufacturing and competitiveness."

ArcelorMittal, Northwest Indiana's other major steel company, also heralded the proposed cuts, which could improve the bottom line of its U.S. operations such as its local mills in East Chicago, Burns Harbor, Riverdale and New Carlisle.

"We appreciate the administration's interest in addressing corporate tax reform and their ideas about how we might adjust the current tax code to improve economic opportunity and business investment in the U.S.," spokeswoman Mary Beth Holdford said.

"However, until the new tax legislation is finalized, we can't speculate on what tax reform measures might mean for our U.S. operations."

Much smaller businesses also see the potential for increased revenue and more cash circulating around the local economy. Jim Rombous, owner of Miles Books in downtown Highland, hopes a lighter tax burden means customers will end up with more money in their pockets to buy books with.

"Miles Books is obviously in the entertainment business, selling books," he said.

"If the personal tax rate is reduced, that will allow the consumer to have more discretionary income on a monthly basis. That should translate into an increase in book sales. If corporations choose to invest in raises for employees and possibly new hires with their tax savings, that should also help with discretionary spending."

Rombous also said cuts could possibly create jobs.

"The lower tax rate for us as a corporation could lead to additional employees," he said.

Smaller businesses may not see big effects

In theory, lower taxes on profits will give businesses an incentive to invest more in payroll, technology and research and development, Peoples Bank Chief Executive Officer Ben Bochnowski said. But changing the nominal rate doesn't change that incentive, he said.

"This will have a really big impact for larger multinational corporations that have a lot of cash overseas — that is not the case for our company, nor is it the case for many of the local businesses in Northwest Indiana," Bochnowski said.

"Fundamentally, while it may increase profits at some local businesses, I personally don’t believe it will have a big impact on some of the structural issues we have in the local economy and our local employment base."

Berlin Metals President Roy Berlin said he doubted the proposed cuts would get approval in the House of Representatives and the Senate because of how much they would add to the budget deficit. But he sees bipartisan support for a reduction in the corporate tax rate, though he doesn't know if 15 percent is realistic or necessary. 

"I do think that a reduction to make the U.S. corporate tax rate more competitive with other developed nations would be beneficial for the U.S. economy as a whole," Berlin said.

"To make a cut like that revenue-neutral would require the elimination of some corporate tax deductions. Some of these deductions currently result in some very large corporations paying very little corporate income tax, and that’s not fair."

Berlin thinks the Region could benefit more from the $1 trillion infrastructure plan the administration has brought up, without making any specific proposals.

"A way to fund that would be a small increase in the gas tax, which hasn’t changed in 24 years and in inflation-adjusted dollars has lost 40 percent of its purchasing ability in that time," he said.

In Indiana, the General Assembly this session did just that, raising gas taxes by 10 cents per gallon starting July 1, and raising vehicle-registration fees starting in 2018. Both measures are projected to generate almost $5 billion in new funds for state and local road work over the next seven years.

Proposal doesn't address revenue cuts, deficit hike

Currently, the proposed tax cuts are essentially just an outline, said Micah Pollak, assistant professor of economics at Indiana University Northwest.

"We do not have many specific details to evaluate," he said.

"Unfortunately, as with any tax plan, the devil is in the details. That being said, what we do know can be roughly divided into two types of changes — changes that affect firms and changes that will affect individuals."

The most significant change would be the reduction of the corporate tax rate to 15 percent, down from 35 percent.

"While among other developed countries the U.S. corporate tax rate is extremely high, most firms, and especially larger firms, typically do not pay this rate," he said.

"If this change results in a lower tax rate that has fewer loopholes, then this may be a boon for small to medium businesses that are unable to afford a team of lawyers to reduce the amount they pay. On the other hand, depending on the details, this may lead to a large decrease in tax revenue and lead to either a significant cut in government services, or an increase in the deficit."

Individuals will be affected by a number of proposed changes, such as eliminating the death tax and all federal tax deductions other than mortgage and charitable contributions.

"All of these are intended to simplify the tax code, but how they affect the taxes an individual or household will pay depends a lot on the characteristics of the household," Pollak said.

"While we do not have details for what income levels these brackets will apply to, this will certainly lower taxes for high-income individuals and households, as it would lower the maximum marginal tax rate from 39.6 percent currently to 35 percent. Without further details, it is difficult to say whether taxes for middle- and low-income households will go up or down."

Pollak said he didn't think changes to the tax code would have a significant effect on the Northwest Indiana economy, since they would mainly benefit wealthy individuals and households. He also cautioned against claims that tax cuts of such magnitude would magically pay for themselves.

"I would also add that it has long been the dream of every politician to find a way of cutting taxes to stimulate the economy that also increases tax revenue," Pollak said.

"Unfortunately, reality does not work this way. If a tax cut reduces the amount firms and individuals pay, it must necessarily also reduce the amount of tax revenue. While the argument that cutting taxes will stimulate the economy and thereby offset any loss in tax revenue is often used, this effect has been widely disproved. I would not count on a tax cut like the one proposed to have a significant positive effect on the economy."

Copyright 2017,, Munster, IN

Editor, John C. DePrez Jr.; Executive Editor, Carol Rogers; Publishers: IBRC and IAR

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