If GOP axes break on state taxes, it would hurt locally
to those with more than $100,000 in income, the Tax Foundation said in a report.
It also favors states with high tax rates, and high property values. In 2014, California and New York together received nearly one-third of the deduction’s total value nationwide, the foundation said.
The average deduction in California — about $17,000 in 2014 — trailed the average in New York, New Jersey and Connecticut. But because California is so large, it claimed almost 20 percent of the nationwide tax savings.
Ranked by size of average deduction, four Bay Area counties made the country’s top 10.
I contacted all 14 of California’s Republican representatives, including Majority Leader Kevin McCarthy from Bakersfield, to see whether they favor killing this deduction. (None are from the Bay Area.) Only four responded.
Devin Nunes of Tulare, who sits on the tax-writing Ways and Means Committee, “supports getting rid of the deduction for state and local taxes, and pairing it with doubling of the standard deduction and additional child-focused tax relief,” a spokesman said in an email.
Tom McClintock of Elk Grove (Sacramento County) declined to comment, but his staff pointed me to an interview he did on KGO radio in which he said eliminating the deduction would result in “double taxation. You’re taxed on the same income by both the federal government and the state government and the local government. That won’t do at all and I think that’s going to be one of the pieces of the proposal that’s going to be modified over time.”
In emails, Mimi Walters of Irvine and Jeff Denham of Turlock (Stanislaus County) wouldn’t state a position. Walters said she will consider any tax reform proposal that eases the burden on individuals and businesses and Denham said he wants reforms that create “a fairer, flatter tax code that individuals can easily understand.”
Republicans from wealthier districts are in the toughest spot. That includes Walters, Ken Calvert from Corona (Riverside County), Dana Rohrabacher of Costa Mesa (Orange), Darrell Issa of Vista (San Diego), Duncan Hunter of Alpine (San Diego) and Steve Knight of Lancaster (Los Angeles), Cole said.
Republicans representing inland areas could also come under pressure. Although their constituents deduct less tax than those in California’s coastal districts, compared to rural residents in other states, they deduct a lot.
In 2014, the average state and local tax deduction in California ranged from $1,330 in Imperial County to $16,956 in Marin. In Missouri, it ranged from $392 in Worth County to $4,593 in St. Louis County, according to a Tax Foundation map.
Although losing the state and local tax deduction would hit highincome people the hardest, other parts of the Trump and Ryan plans would help them. This includes cutting the top marginal rate, getting rid of the 3.8 percent Medicare surcharge on investment income over a certain amount, repealing the estate tax and the alternative minimum tax and slashing the tax rate on all businesses to 15 percent.
“These are all very big tax cuts. To balance that out, you have to get rid of things they benefit from on the deduction side,” said Roberton Williams, a senior fellow with the Tax Policy Center, a nonpartisan think tank.
People subject to the alternative minimum tax can’t use the state and local tax deduction, so killing them both could be a wash for them.
Eliminating the deduction would not leave people who don’t claim it unharmed. That’s because the deduction “indirectly subsidizes state and local governments by decreasing the net cost of nonfederal taxes to those who pay them. For example, a $100 increase in state income taxes costs a taxpayer in the 35 percent federal income tax bracket just $65,” the Tax Policy Center said in a report. “This subsidy encourages state and local governments to levy higher taxes — and, presumably, provide more services — than they otherwise would.”
If the deduction dies, “State and local government would have pressure to downsize. There would be pressure to collect less and do less at the local level. Everyone who benefits from those services” would feel the pain, Williams said.
I also asked the Bay Area’s nine House members, all Democrats, what they think of Republican plans to kill the deduction. All seven who responded — including House Minority Leader Nancy Pelosi, Jackie Speier of Hillsborough and Eric Swalwell of Dublin — said they oppose it.
“In a place with a high cost of living, it would be devastating for working-class, middle-class families not to deduct it on their taxes,” said Ro Khanna of Fremont.
Even though it primarily benefits people making more than $100,000 a year, “a lot of what people consider high income is not high income in a high-cost state,” said Palo Alto’s Anna Eshoo.
Mark DeSaulnier of Concord called Trump’s proposal “a juvenile, potential retaliation because California and New York did not vote for him. If it was a good idea, it should be fleshed out, have the (Congressional Budget Office) look at it.”
Mike Thompson of St. Helena, a member of the Ways and Means Committee, said, “You would think my Republican colleagues (would oppose cutting the deduction), given that our constituents benefit from that.” But he noted that last week, “every single Republican” from California voted in favor of a House health care bill that would drastically scale back federal funding for Medicaid, even though “some live in districts with the highest number of Medicaid individuals,” Thompson said. “They threw their Medicaid population under the bus for the benefit of the party.”