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Republicans Are Reconsidering Full Repeal of State and Local Tax Deduction Republicans Are Reconsidering Full Repeal of State and Local Tax Deduction
(about 7 hours later)
WASHINGTON — Republican leaders are backing away from a proposal to fully repeal an expensive tax break used by more than 40 million tax filers to deduct state and local taxes amid pushback from fellow lawmakers whose residents rely on the popular provision.WASHINGTON — Republican leaders are backing away from a proposal to fully repeal an expensive tax break used by more than 40 million tax filers to deduct state and local taxes amid pushback from fellow lawmakers whose residents rely on the popular provision.
The state and local tax deduction is estimated to cost $1.3 trillion over the next decade and its repeal is central to paying for a sweeping tax rewrite unveiled last week by Republican lawmakers and administration officials. But elimination of the provision has emerged as a flash point in the nascent debate over the plan, with Republicans in high-tax states worried about backlash from residents who could see their tax bills rise.The state and local tax deduction is estimated to cost $1.3 trillion over the next decade and its repeal is central to paying for a sweeping tax rewrite unveiled last week by Republican lawmakers and administration officials. But elimination of the provision has emerged as a flash point in the nascent debate over the plan, with Republicans in high-tax states worried about backlash from residents who could see their tax bills rise.
The White House and Republican lawmakers are considering alternatives to an outright repeal, including allowing taxpayers to choose between deducting their mortgage interest or state and local taxes, a limit on the deduction or a special tax break for middle-class families that live in areas with high property taxes.The White House and Republican lawmakers are considering alternatives to an outright repeal, including allowing taxpayers to choose between deducting their mortgage interest or state and local taxes, a limit on the deduction or a special tax break for middle-class families that live in areas with high property taxes.
Representative Chris Collins, Republican of New York, said in an interview on Tuesday that party leaders had assured him “there’s not going to be full repeal” of the state and local tax deduction. Mr. Collins, who represents a district in upstate New York, is among the more than 30 Republicans whose residents make heavy use of the deduction and would be more likely to see their tax bills rise if the provision is be eliminated. Representative Chris Collins, Republican of New York, said in an interview on Tuesday that party leaders had assured him “there’s not going to be full repeal” of the state and local tax deduction. Mr. Collins, who represents a district in upstate New York, is among the more than 30 Republicans whose residents make heavy use of the deduction and would be more likely to see their tax bills rise if the provision is eliminated.
Mr. Collins said he raised concerns about the proposed repeal at a dinner on Monday with Representative Kevin Brady, Republican of Texas, who chairs the Ways and Means Committee, and again at lunch on Tuesday with Representative Kevin McCarthy, Republican of California, the House majority leader. Mr. Collins said he raised concerns about the proposed repeal at a dinner on Monday with Representative Kevin Brady, Republican of Texas, who leads the Ways and Means Committee, and again at lunch on Tuesday with Representative Kevin McCarthy, Republican of California, the House majority leader.
He said both Mr. Brady and Mr. McCarthy acknowledged full repeal would be a “non-starter” with a large block of Republicans in the conference, and that “it’s safe to say, we’re no longer going to be talking about a full repeal.” He said both Mr. Brady and Mr. McCarthy acknowledged that full repeal would be a “nonstarter” with a large bloc of Republicans in the conference, and that “it’s safe to say, we’re no longer going to be talking about a full repeal.”
A spokeswoman for Mr. Brady confirmed the state and local deduction was discussed over the Monday dinner but did not elaborate. She referred reporters to Mr. Brady’s comments on Monday, when he told a press gathering that party leaders are still crafting the details of their plan, and “listening very closely to all our lawmakers, Republicans and Democrats alike, who are in high-tax states.” A spokeswoman for Mr. Brady confirmed the state and local deduction was discussed over the Monday dinner but did not elaborate. She referred reporters to Mr. Brady’s comments on Monday, when he told a press gathering that party leaders were still crafting the details of their plan, and “listening very closely to all our lawmakers, Republicans and Democrats alike, who are in high-tax states.”
Preserving the deduction entirely would raise the cost of the Republican tax plan by more than $1 trillion over 10 years and another $2.3 trillion over the following decade, according to an analysis by the Tax Policy Center, a nonpartisan think tank. The analysis has not calculated for alternate scenarios, such as higher taxes on the wealthiest Americans, but anything less than a full repeal would mean less money for federal coffers and could make it more difficult for Republicans to slash corporate tax rates as low as they are proposing. Preserving the deduction entirely would raise the cost of the Republican tax plan by more than $1 trillion over 10 years and an additional $2.3 trillion over the following decade, according to an analysis by the Tax Policy Center, a nonpartisan think tank. The analysis has not calculated for alternate scenarios, such as higher taxes on the wealthiest Americans, but anything less than a full repeal would mean less money for federal coffers and could make it more difficult for Republicans to slash corporate tax rates as low as they are proposing.
Mr. Collins said one possibility under discussion would be forcing taxpayers to choose between claiming a deduction for mortgage interest or for property taxes, but not both, on property valued up to $1 million.Mr. Collins said one possibility under discussion would be forcing taxpayers to choose between claiming a deduction for mortgage interest or for property taxes, but not both, on property valued up to $1 million.
The state and local tax deduction has its fair share of critics, including conservative lawmakers who argue it is an unfair federal subsidy of wealthier states with high taxes. They also argue that it tends to benefit wealthy taxpayers who itemize deductions on their tax returns.The state and local tax deduction has its fair share of critics, including conservative lawmakers who argue it is an unfair federal subsidy of wealthier states with high taxes. They also argue that it tends to benefit wealthy taxpayers who itemize deductions on their tax returns.
Representative Mark Meadows, Republican of North Carolina and the chairman of the hard-line House Freedom Caucus, suggested that as a compromise, the deduction for state and local taxes could be retained but capped at a certain amount, in order to provide “a fair deduction but not one that is disproportionately enjoyed by people in New York or New Jersey.”Representative Mark Meadows, Republican of North Carolina and the chairman of the hard-line House Freedom Caucus, suggested that as a compromise, the deduction for state and local taxes could be retained but capped at a certain amount, in order to provide “a fair deduction but not one that is disproportionately enjoyed by people in New York or New Jersey.”
“That way, North Carolina would be on parity with other states,” he said.“That way, North Carolina would be on parity with other states,” he said.
Even lawmakers who want to kill the state and local tax deduction have acknowledged that it may survive.Even lawmakers who want to kill the state and local tax deduction have acknowledged that it may survive.
“I think the administration is thinking about some minor sort of real estate tax break for those middle class families in high real estate tax jurisdictions,” said Senator Bill Cassidy of Louisiana, a Republican on the Senate Finance Committee. “I think the administration is thinking about some minor sort of real estate tax break for those middle-class families in high real estate tax jurisdictions,” said Senator Bill Cassidy of Louisiana, a Republican on the Senate Finance Committee.
Mr. Cassidy lamented that fate, saying it is unfair for residents of Louisiana to subsidize wealthy taxpayers in California who write off the state’s high taxes.Mr. Cassidy lamented that fate, saying it is unfair for residents of Louisiana to subsidize wealthy taxpayers in California who write off the state’s high taxes.
The White House does not appear to be craving a fight over the provision. Last week, Gary D. Cohn, the director of the National Economic Council, signaled that President Trump would be willing to negotiate on the state and local tax deduction. While he is committed to getting the corporate tax rate to 20 percent, Mr. Cohn said that the deduction is not a “red line.” The White House does not appear to be craving a fight over the provision. Last week, Gary D. Cohn, the director of the National Economic Council, signaled that President Trump would be willing to negotiate on the state and local tax deduction. While he is committed to getting the corporate tax rate to 20 percent, Mr. Cohn said that the deduction was not a “red line.”
The framework called for cutting the corporate tax rate to 20 percent from 35 percent, creating a new lower 25 percent tax rate for “pass through” businesses and doubling the standard deduction. It would also eliminate many other deductions and loopholes. The preliminary estimate of the cost of the overall plan by the Tax Policy Center was $2.4 trillion over 10 years.The framework called for cutting the corporate tax rate to 20 percent from 35 percent, creating a new lower 25 percent tax rate for “pass through” businesses and doubling the standard deduction. It would also eliminate many other deductions and loopholes. The preliminary estimate of the cost of the overall plan by the Tax Policy Center was $2.4 trillion over 10 years.
Bruised by criticism that their tax plan could prove costly to many middle class Americans, Republican leaders in Congress have assailed the study as inaccurate and they continued to lash out at it on Tuesday. Bruised by criticism that their tax plan could prove costly to many middle-class Americans, Republican leaders in Congress have assailed the study as inaccurate and they continued to lash out at it on Tuesday.
Senator Orrin Hatch of Utah, the Republican chairman of the Senate Finance Committee, described it as “haphazardly cobbled together” on the grounds that the tax framework was still missing so many important details that would affect its cost and impact, such as how much the child tax credit may increase and which business deductions may be repealed. Senator Orrin Hatch of Utah, the Republican chairman of the Senate Finance Committee, described it as “haphazardly cobbled together” on the grounds that the tax framework was still missing so many important details that would affect its cost and impact, such as how much the child tax credit might increase and which business deductions might be repealed.
Asked if preserving the state and local deduction was one of the details he was willing to change, Mr. Hatch responded affirmatively.Asked if preserving the state and local deduction was one of the details he was willing to change, Mr. Hatch responded affirmatively.
“I’m open to everything,” he said.“I’m open to everything,” he said.