House tax bill may be altered to ease burden on California
WASHINGTON — The 14 Republican members of California’s House delegation have enough votes among them to kill the $1.5 trillion tax bill now under negotiation in Congress, and GOP leaders are wrestling with possible increases in the deductions available for state and local taxes to keep them on board.
Meanwhile, top California Democrats applied their own pressure this week, attacking the state’s 11 Republicans who voted for the House version of the tax bill that eliminated the popular deduction, a move that could cost some state taxpayers thousands of dollars and would impair the state’s and cities’ ability to raise taxes.
Gov. Jerry Brown accused Republicans of “acting like a bunch of Mafia thugs” targeting rich, high-tax and largely Democratic states to redistribute money to Republican-leaning, lowtax states.
And in a rare move, House Minority Leader Nancy Pelosi of San Francisco used her Thursday news conference to call out — by name — the 11 California Republicans who voted for the House bill.
“Eleven Republicans in California voted to do violence to the economy of our state,” Pelosi
said. “Eleven. The exact number that if they had voted correctly would have stopped the bill.”
The House bill, passed last month, and the Senate version, approved Dec. 2, are being reconciled in a conference committee. Both would eliminate the deduction for state and local taxes, except for a $10,000 exemption for property taxes.
Although three California Republicans — Darrell Issa of Vista (San Diego County), Tom McClintock of Elk Grove (Sacramento County) and Dana Rohrabacher of Costa Mesa (Orange County) — voted against the House bill, citing its harm to state taxpayers, many California GOP lawmakers were strangely silent on the issue at the time.
But now House Majority Leader Kevin McCarthy, RBakersfield, and others are said to be pushing for changes that would allow taxpayers to apply the $10,000 property tax exemption to other state and local income taxes, tinkering with various combinations that would ease the burden on California taxpayers.
Limiting the deduction to property taxes is of less value in California, where Proposition 13 has restrained property tax increases. Tying state and local income taxes to the $10,000 exemption may also have limited value. California has the highest state income tax rate at 13.3 percent. About a third of California taxpayers use the deduction, claiming on average more than $18,000 off their federal taxable income.
Republicans trying to reconcile the bill’s two versions are now negotiating among themselves to find the tricky combination that can win over various GOP factions in both chambers without losing others, all the while keeping the projected increase in the deficit below $1.5 trillion. They are rushing to push a final version through both chambers before Christmas.
Rep. Steve Knight, R-Lancaster (Los Angeles County), told the Los Angeles Times this week that he only voted for the first version of the bill after being promised that it would change in the final reconciled bill. Knight said he’s been meeting with GOP leaders daily and has made it “very clear that I could be a ‘no’ on this without a problem.”
GOP leaders have not yet settled on how to ease the burden on taxpayers in California and other high-tax states, tax experts said.
Among the ideas floated is to allow taxpayers to choose whether to deduct state income taxes, sales taxes or property taxes under the current $10,000 exemption in both bills, or allow taxpayers to deduct up to $10,000 using some combination of state, local and property taxes.
These options would increase the cost of the tax bill significantly by allowing more taxpayers to use the deduction. For example, a person might deduct $6,000 in property taxes and $4,000 more in state income or sales taxes, instead of just $6,000 in property taxes.
The expansion would force difficult trade-offs for GOP lawmakers, but any trade-offs are sure to meet resistance in other quarters.
Tax experts said that to pay for a bigger state and local deduction, lawmakers could scale back the proposed 20 percent corporate tax rate (now at 35 percent under current law), reduce cuts in proposed income tax rates, scale back the child tax credit or other painful options.
A coalition of conservative groups led by Americans for Tax Reform issued a letter Friday saying the low corporate tax rate is the main reason they support the GOP bills.
Easing the burden of eliminating state and local taxes “would almost certainly require changes to the proposed rates for individuals or corporations,” said Jared Walczak, an analyst with the Tax Foundation, a conservative-leaning group that analyzes tax policy and supports the GOP tax bill. Walczak said the state and local deduction “benefits primarily the highest-income taxpayers.”
He took issue with Brown’s charge that Republican lawmakers were out to punish successful states.
“The state and local tax deduction is a tax preference that favors high-income tax states, and eliminating it is not going after a state, but rather going after a preference that has overwhelmingly favored a few states, particularly their highincome residents,” Walczak said.
But Carl Davis, research director for the Institute on Taxation and Economic Policy, which also analyzes tax policy and leans left, said as currently written, the bills “offer a terrible deal for California.” He dismissed arguments that the state and local tax deduction benefits the well-off.
“Even in cases where Californians would get a tax cut, what’s clear is that California is getting a tax cut that is far, far smaller than one would expect based on the size of its economy, its population and the income in the state,” Davis said. “Somebody earning $90,000 in San Francisco is not nearly as well off as someone earning $90,000 in Arkansas, and the state and local deduction helps adjust for that.”
“Eleven in California Republicans voted to do violence to the economy of our state.” Nancy Pelosi, House minority leader