Com­pro­mises con­sid­ered on state-lo­cal tax de­duc­tion

Repub­li­cans from high-tax states op­pose plan to re­move break


WASH­ING­TON — The top House Re­pub­li­can on Thurs­day blasted high-tax states that de­liver bil­lions to the fed­eral govern­ment as he faced a back­lash from rankand-file GOP law­mak­ers over a sweep­ing tax-cut pro­posal.

But beyond the tough rhetoric from Speaker Paul Ryan, dis­grun­tled law­mak­ers met pri­vately with Re­pub­li­can lead­ers and reached for pos­si­ble com­pro­mises to break the im­passe. The GOP law­mak­ers from high-tax states op­pose the plan’s pro­posal to re­peal the pop­u­lar fed­eral de­duc­tion for state and lo­cal taxes. It’s used in large num­bers by res­i­dents of their states.

The $6 tril­lion tax over­haul plan is threat­ened by the po­ten­tial GOP de­fec­tions.

Ryan went on the of­fen­sive against high­tax states like Cal­i­for­nia, New York and New Jer­sey even though the GOP law­mak­ers from those states need to be brought on board to sup­port the tax over­haul plan. But Ryan con­tended the rest of the coun­try is “prop­ping up prof­li­gate, big-govern­ment states” that levy high taxes on their res­i­dents and spend reck­lessly.

“States that got their act to­gether are pay­ing for states that didn’t,” the Wis­con­sin law­maker said at an ap­pear­ance at the con­ser­va­tive Her­itage Foun­da­tion.

In fact, Cal­i­for­nia, New York and New Jer­sey send many bil­lions more in taxes to Wash­ing­ton than they get back in fed­eral spend­ing, new data show. Di­vided by to­tal state res­i­dents, New York gets back 81 cents for ev­ery $1 it pays in, New Jer­sey re­ceives 74 cents and Cal­i­for­nia 96 cents, ac­cord­ing to an anal­y­sis re­leased last month by the Rock­e­feller In­sti­tute of Govern­ment.

New York con­trib­uted $48 bil­lion more in taxes to the fed­eral govern­ment than it re­ceived in govern­ment spend­ing — the big­gest deficit the anal­y­sis found. The fig­ures were for the bud­get year end­ing Sept. 30, 2015.

The state-lo­cal de­duc­tion is claimed by around 44 mil­lion peo­ple and costs the govern­ment an es­ti­mated $1.3 tril­lion in lost rev­enue over 10 years.

“There’s a num­ber of pro­pos­als on the ta­ble,” said Rep. Tom MacArthur, R-N.J., emerg­ing from the meet­ing of his col­leagues from high-tax states with GOP lead­ers.

“There’s more than one way to skin this cat,” MacArthur said, but added, “It has to be soon.”

One pos­si­ble com­pro­mise they were asked about would cap the de­duc­tion at a sin­gle tax­payer’s an­nual in­come of $400,000 ($800,000 for a mar­ried cou­ple).

That would af­fect just the top 1 per­cent of tax­pay­ers, ac­cord­ing to Amir El-Sibaie, an an­a­lyst at the busi­ness-friendly Tax Foun­da­tion. It could bring in $481 bil­lion in rev­enue over 10 years, com­pared with an es­ti­mated $1.8 tril­lion if the de­duc­tion were fully re­pealed, El-Sibaie cal­cu­lates.

Op­po­si­tion to end­ing the de­duc­tion has pro­duced an un­usual al­liance of the Re­pub­li­can law­mak­ers from high-tax, Demo­cratic-lean­ing states; state and lo­cal govern­ment of­fi­cials; pub­lic em­ployee la­bor unions; and some busi­ness groups. Wary of the fi­nan­cial pinch their con­stituents and mem­bers could sus­tain from los­ing the de­duc­tion, they are press­ing the Trump ad­min­is­tra­tion to re­con­sider.


House Speaker Paul Ryan holds a copy of a pro­posed “sim­ple tax” post­card while speak­ing at the Her­itage Foun­da­tion.

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