Tax bill expected to hurt many in state
GOP legislation shifts burdens to blue areas of U.S.
Now that the GOP-led Senate has passed a tax bill that will largely benefit the nation’s biggest companies and wealthiest people, the next step is to merge that version with what the House passed last month — and the version that emerges is unlikely to be much different for most residents of California.
Chances are, many state residents’ tax bills will be higher in years to come.
“I don’t see it changing much” in reconciliation, Rep. Mark DeSaulnier, D-Concord, said Saturday. “The opportunity for change was (Friday) and the day before. This is a bill that very much helps red states and hurts blue states and urban areas.”
On Saturday, Nick Samuels, a vice president at Moody’s Investors Service, said the Senate bill was “negative overall for state and local government finances” and that the “overall negative effect would be felt most sharply in high-tax states such as California, New York and New Jersey.” An analysis by the Institute on Taxation and Economic Policy showed the top 1 percent of Californians would receive an average $14,370 annual tax cut, while the bottom 60 percent would on average pay more in taxes to the federal government by 2027.
The elimination or reduction of two popular tax breaks af-
fects California more than other states, where property values and taxes are lower.
The bill eliminates the deduction for state and local income or sales taxes, and caps the deduction for property taxes at $10,000. More than 6 million Californians take advantage of that deduction, slicing an average of $18,438 per family off of their tax bill annually.
The Senate bill allows taxpayers to claim a mortgage interest deduction on mortgage debt up to $1 million. The House version limits it to $500,000 — and eliminates that deduction for loans on second homes.
Among those who could alter the tax bill are legislators not often in the spotlight in left-leaning California: the state’s 14 House Republicans. They’re about to be under extreme pressure — from liberal groups and their own constituents — to buck party leadership to make changes in the bill.
Three of them voted against the House version of the tax plan that passed last month, 227 to 205 — Reps. Tom McClintock of Elk Grove (Sacramento County), Dana Rohrabacher of Costa Mesa (Orange County) and Darrell Issa of Vista (San Diego County). All three said they opposed increasing the tax burden on their constituents. Every House Democrat opposed the bill.
And all three — like several others in the state’s GOP delegation — are being targeted by Democrats wanting to take their seats in 2018. Democrats are hoping to transform opposition to President Trump in California into flipping GOP districts won by Hillary Clinton, including four in Orange County.
Next week, a coalition led by the Service Employees International Union will lead protests at nine locations in the Central Valley, Orange County and around Santa Clarita in Los Angeles County — all focused on persuading Republican House members to oppose the bill.
“GOP senators passed a real turd of a bill off to their House counterparts, and if California Republicans are smart, they won’t want the stink of it to be on them come election time in 2018,” Democratic strategist Mike Roth said Saturday.
While Republicans say the tax cuts will stimulate growth in the economy, the Moody’s analysis of the Senate bill said there is a steep downside to those cuts, too.
“Lower federal tax rates for businesses and individuals could result in a modest boost to hiring and consumption, positively affecting state and local revenues,” Moody’s Samuels said Saturday. “However, the change to the state and local tax deduction would reduce disposable income for many taxpayers, likely outweighing the positive effect of lower federal rates on consumption in many communities and states.”
Some of the counties that stand to lose the most from losing the deductions are represented by GOP legislators. In Orange County, 561,870 taxpayers — roughly 1 in 3 filing returns — claimed state and local tax deductions. Those deductions were worth an average of $19,774, one of the highest in the state, according to IRS Statistics of Income for 2015.
In politically deep-blue counties like San Francisco, those deductions averaged $35,020. In Alameda, they were $19,075 and in Marin, $38,183.
However, in more rural red areas like Stanislaus County, the deductions averaged $10,367.
“The (Republican) leadership gave some more protection to rural counties,” DeSaulnier said.
Businesses, especially large multinational corporations, also will see some major benefits from the tax bill. Aside from slicing the corporate tax rate from the current 35percent to 20 percent, companies also will have to pay little or no taxes on profits earned overseas. GOP tax officials hope this will encourage those companies to repatriate more than $2 trillion now being kept overseas, away from the IRS.
Those changes come at a cost, however. The Joint Commission on Taxation, a nonpartisan congressional committee, reported last week that the Senate tax bill will add about $1 trillion to the deficit over the next 10 years.
There will be little time for Democrats to change GOP hearts and minds, as the next step in the rushed process continues Monday.
On Saturday, House Majority Leader Kevin McCarthy, R-Bakersfield, called his colleagues back to work Monday, a day early, “so we can vote to go to conference with our Senate colleagues and give the American people a big tax cut by Christmas.”
That comes after the Republican-led Senate held no public hearings on the 479-page bill before showing the final version — with many handwritten notes in the margins — to senators at 5 p.m. Friday, less than nine hours before voting on it.
For contrast, when Congress passed a much more comprehensive tax reform plan in 1986, during the Reagan administration, more than 450 witnesses testified before the House Ways and Means Committee and the Senate Finance Committee held 33 days of hearings.
“When I was a planning commissioner in Concord, we gave more scrutiny to a fast-food restaurant application than we did as members of Congress to the most important piece of legislation in 30 years,” DeSaulnier said Saturday.
A McCarthy spokesman was noncommittal about whether any changes might be coming that could affect Californians.
“We are looking forward to going to conference,” spokesman Matt Sparks said Saturday after McCarthy said he was optimistic about reconciling “the few differences between these two bills.”