Se­nate plan elim­i­nates all prop­erty tax de­duc­tions

It would be a big­ger blow than the House bill to home­own­ers in ex­pen­sive states like Cal­i­for­nia, New York.

Los Angeles Times - - FRONT PAGE - By Lisa Mas­caro and Jim Puz­zanghera

WASH­ING­TON — Con­gres­sional Repub­li­cans ad­vanced two com­pet­ing vi­sions of tax re­form Thurs­day, setting up a po­ten­tially bruis­ing bat­tle in the weeks ahead as they strug­gle to agree on a bill Pres­i­dent Trump can sign.

With the Se­nate GOP’s un­veil­ing of its tax plan, key dif­fer­ences with the House ver­sion be­came ap­par­ent. Among the big­gest po­ten­tial losers in both plans are res­i­dents of Cal­i­for­nia and other high-cost states, who rely heav­ily on item­ized de­duc­tions for state, lo­cal and prop­erty taxes.

The Se­nate plan elim­i­nates all such state and lo­cal de­duc­tions, while the House pro­posal re­tains prop­erty tax de­duc­tions up to $10,000. As a trade-off, the Se­nate ver­sion would pre­serve other pop­u­lar de­duc­tions tar­geted for re­moval in the House plan, such as for med­i­cal ex­penses.

Both the Se­nate and House plans would lower the cor­po­rate tax rate from 35% to 20%, but the House would make the cut im­me­di­ately, while the Se­nate would de­lay im­ple­men­ta­tion for a year, un­til 2019, in or­der to save an es­ti­mated $108 bil­lion.

There are also key dif­fer­ences in how new in­di­vid­ual rates would be set, the re­peal of the es­tate tax and a va­ri­ety of other pro­vi­sions.

Those and other dis­crep­an­cies will need to be set­tled, while also mak­ing sure the tax breaks don’t add to the fed­eral deficit by more than the agreed-upon $1.5 tril­lion over 10 years.

But Repub­li­cans ap­pear mo­ti­vated to ful­fill one of their party’s top cam­paign

prom­ises. This week’s GOP losses in state elec­tions served as wake-up call and could pro­vide mo­men­tum to push for pas­sage of tax leg­is­la­tion by Christ­mas, as­sum­ing they come to an agree­ment.

“This com­pre­hen­sive tax re­form will make a huge dif­fer­ence for Amer­ica,” said Se­nate Ma­jor­ity Leader Mitch McCon­nell (R-Ky.). “This is go­ing to be an ex­tra­or­di­nary ac­com­plish­ment.”

Out­side an­a­lysts crit­i­cized the Repub­li­can ap­proach as heav­ily tilted to­ward cor­po­ra­tions and the wealthy and adding to the na­tion’s debt. But House Repub­li­cans mus­cled for­ward with their ver­sion Thurs­day af­ter­noon as the Ways and Means Com­mit­tee ap­proved a mea­sure on a party-line vote.

Ma­jor­ity Leader Kevin McCarthy (R-Bak­ers­field) said the full House would vote to pass its bill next week, de­spite op­po­si­tion from some New York, New Jer­sey and Cal­i­for­nia law­mak­ers con­cerned about the elim­i­na­tion of de­duc­tions for state in­come and sales taxes.

Both pro­pos­als, de­vel­oped in co­or­di­na­tion with the White House but with al­most no in­put from Democrats, have as their cen­ter­piece a siz­able cor­po­rate rate re­duc­tion to 20%, the low­est since 1939. Though Trump has pushed law­mak­ers to make the cut im­me­di­ately, House lead­ers and ad­min­is­tra­tion of­fi­cials have in­di­cated they are open to the one-year de­lay pro­posed by the Se­nate.

“I think the sooner we get the 20% rate, the bet­ter it is for the econ­omy,” Trea­sury Sec­re­tary Steven T. Mnuchin told Fox Busi­ness News on Thurs­day. “Ob­vi­ously right away is bet­ter than a year, but a year is bet­ter than ob­vi­ously a longer phase-in.”

The Se­nate plan also pro­poses a slightly lower top in­di­vid­ual tax rate, 38.5%, com­pared with the House ver­sion, which would keep the cur­rent 39.6%. The Se­nate plan’s top rate would ap­ply to in­di­vid­u­als earn­ing $500,000 or more and cou­ples earn­ing $1 mil­lion or more, ac­cord­ing to Sen. John Ho­even (R-N.D.).

Per­haps the big­gest po­lit­i­cal bat­tle­ground will be the Se­nate Repub­li­cans’ plan to do away com­pletely with de­duc­tions for all state in­come and prop­erty taxes, tor­pe­do­ing the frag­ile com­pro­mise House lead­ers reached with GOP law­mak­ers from New York, New Jer­sey and Cal­i­for­nia to pre­serve the prop­erty tax de­duc­tion. Al­ter­ing that agree­ment could cost Repub­li­cans votes in the House.

Rep. Lee Zeldin (R-N.Y.) said he planned to vote against the tax bill un­less it is changed. “I re­main a no on both the House and Se­nate pro­pos­als in the cur­rent form,” he said in a state­ment. “It is dis­ap­point­ing that the draft Se­nate bill is likely to com­pletely elim­i­nate [state and lo­cal tax de­duc­tions]. How­ever, the fight is not over.”

“Let’s stop pre­tend­ing this tax pro­posal is good for ev­ery­body: the mid­dle-in­come peo­ple of New York, Cal­i­for­nia, Illi­nois and New Jer­sey are foot­ing the bill for a tax break for peo­ple else­where,” wrote Rep. Dan Dono­van (R-N.Y.) in the New York Daily News.

In ex­change, the Se­nate would keep other pop­u­lar write-offs, in­clud­ing those for med­i­cal ex­penses, stu­dent loan in­ter­est and adop­tions. The House also voted Thurs­day to re­tain the adop­tion write-off — which it had pre­vi­ously ear­marked for re­moval — fol­low­ing protests from evan­gel­i­cal Chris­tian groups.

The Se­nate plan would also pre­serve the cur­rent mort­gage in­ter­est de­duc­tion for loans up to $1 mil­lion, rather than the $500,000 cap pro­posed by the House.

On the es­tate tax, while both pro­pos­als would dou­ble the ex­emp­tion to $11 mil­lion for in­di­vid­u­als and $22 mil­lion for cou­ples, the House ful­fills the long­time GOP goal of re­peal­ing it — in seven years — while the Se­nate would re­tain it.

Both pro­pos­als would raise the stan­dard de­duc­tions to $12,000 for in­di­vid­u­als and $24,000 for cou­ples, in hopes of sim­pli­fy­ing fil­ing for many tax­pay­ers. But both would also end the $4,050 per-per­son per­sonal ex­emp­tion used by many Amer­i­cans to lower their tax bills.

And both in­crease the child tax credit, to $1,600 in the House and $1,650 in the Se­nate. That fell short of the $2,000 sought by Sen. Marco Ru­bio (R-Fla.) and the pres­i­dent’s ad­vi­sor and daugh­ter, Ivanka Trump.

The Se­nate plan did not in­clude a re­peal of the re­quire­ment un­der the Af­ford­able Care Act that in­di­vid­u­als have health­care in­sur­ance. That idea had been pushed by some as an­other way to save money.

The Se­nate bill does less to sim­plify in­di­vid­ual taxes, main­tain­ing seven tax brack­ets in­stead of the House bill’s four. The House plan pro­posed stream­lin­ing tax brack­ets to: 12%, 25%, 35% and 39.6%. The Se­nate pro­poses 10%, 12%, 22.5%, 25%, 32.5%, 35% and 38.5%.

“When you have fewer brack­ets, there are some peo­ple within each bracket that might get hit dif­fer­ently,” said Sen. David Per­due (R-Ga.). “By hav­ing a few more brack­ets, it pro­tects against that.”

An­other key dif­fer­ence is that the Se­nate plan would con­tinue tax­ing so-called pass-through businesses at the in­di­vid­ual rate that would ap­ply to the owner, cur­rently capped at 39.6%. The House pro­posed cap­ping the top tax rate for such en­ti­ties, which in­cludes small businesses, real es­tate part­ner­ships and law firms, at 25%.

But to ease the tax bur­den on pass-throughs, most would be al­lowed to deduct about 17% of their busi­ness in­come from their taxes un­der the Se­nate plan.

Be­cause Democrats in both the House and Se­nate are ex­pected to re­ject the bills af­ter be­ing shut out of the largely par­ti­san process, Repub­li­cans must keep their slim ma­jori­ties to­gether for pas­sage. They can lose no more than about 20 GOP votes in the House and two in the Se­nate, if Vice Pres­i­dent Mike Pence is called on to break a Se­nate tie.

Also on Thurs­day, House Repub­li­cans mus­cled through a last-minute pack­age of changes to raise more rev­enue and ad­dress con­cerns by groups such as the Na­tional Fed­er­a­tion of In­de­pen­dent Busi­ness.

Jack Mo­zloom, a spokesman for the fed­er­a­tion, says the group sup­ported the change and now in­tends to back the House bill, “bar­ring any sur­prises.”

Last week, the group said it could not sup­port the bill be­cause the new top rate of 25% for pass-through businesses wouldn’t be a ben­e­fit to most of its mem­bers, who al­ready pay no more than that rate. Thurs­day’s amend­ment cre­ated a new, lower 9% tax rate for the first $75,000 in busi­ness in­come, which will be phased in over sev­eral years for small passthrough businesses.

Sen­a­tors emerged from a pri­vate brief­ing up­beat, but not fully back­ing the pro­posal as they delve into the de­tails.

“The goal is to raise fam­ily in­comes and to un­leash the tremen­dous po­ten­tial in this coun­try for that, and I think this pro­posal will do that,” said Sen. La­mar Alexan­der (R-Tenn.).

Oth­ers, though, par­tic­u­larly fis­cal con­ser­va­tives, re­mained skep­ti­cal that the tax cuts would gen­er­ate enough eco­nomic growth to cover the costs.

“I re­main con­cerned,” Sen. Jeff Flake (R-Ariz.) said in a state­ment. “We must achieve real tax re­form crafted in a fis­cally re­spon­si­ble man­ner.”

In a state­ment, the White House said Trump was “en­cour­aged that the House and Se­nate have shown great unity in achiev­ing our com­mon goals.”

‘The mid­dlein­come peo­ple of New York, Cal­i­for­nia, Illi­nois and New Jer­sey are foot­ing the bill for a tax break for peo­ple else­where.’ — Rep. Dan Dono­van, New York Repub­li­can

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