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.