Politics Republicans Consider More Generous State and Local Tax Break

05:25  06 december  2017
05:25  06 december  2017 Source:   The New York Times

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Congressional Republicans are considering keeping the state and local tax deduction in some form as part of the party's tax overhaul to avoid losing votes of lawmakers from California and other states that have large numbers of residents who use the break .

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Kevin Brady wearing a suit and tie standing next to a window: Representative Kevin Brady, Republican of Texas and the chairman of the House Ways and Means Committee, on Tuesday in Washington. © Aaron P. Bernstein/Reuters Representative Kevin Brady, Republican of Texas and the chairman of the House Ways and Means Committee, on Tuesday in Washington.

WASHINGTON — Republicans are considering adding a more generous state and local tax break into the $1.5 trillion package barreling through Congress, as they try to ease concerns among lawmakers from high-tax states and their constituents, who say they will be penalized by the current legislation.

The behind-the-scenes discussions on Tuesday among House and Senate Republicans come ahead of an expected Senate vote to begin the process of aligning its bill with the House-passed legislation. The vote could be held as early as Wednesday.

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WASHINGTON — Republicans are considering adding a more generous state and local tax break into the .5 trillion package barreling through Congress, as they try to ease concerns among lawmakers from high- tax states and their constituents

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The state and local tax deduction, or SALT, has been a thorny issue for Republicans, particularly in the House, where numerous members hail from states such as California, New York and New Jersey, where many residents could see their tax bills rise. Twelve of the 13 Republicans who voted against the House tax bill were from those three states.

Right now, taxpayers can deduct state and local tax expenses. Both the Senate and the House bills would significantly scale back that deduction, allowing individuals to write off up to $10,000 in property taxes.

House Republicans are discussing giving taxpayers some kind of option to deduct income taxes, perhaps within that $10,000 cap.

“We’re still looking at how we make tax-reform relief better for those high-tax states,” said Representative Kevin Brady, Republican of Texas and the chairman of the House Ways and Means Committee.

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In their bid to pay for the trillions in tax cuts they want, as well as simplify the tax code, Republican leaders have proposed repealing most itemized deductions. The state and local tax deduction — aka SALT — is the biggest among them.

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Representative Tom Reed, Republican of New York and a member of the Ways and Means Committee, said there were discussions about adding income taxes into the mix when it comes to the state and local tax deduction.

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“I think there’s a natural conversation being had in regards to expanding the state and local tax deduction from not just property,” he said.

Significant changes to the tax bill will probably lean in favor of the Senate because of its narrow majority and strict budget rules, which require that the bill add no more than $1.5 trillion to the deficit over a decade in order to pass along party lines.

Some Republican senators suggested Tuesday that they were open to making changes to the bill that they passed in the early hours of Saturday morning, but that they would need to find ways to pay for those changes.

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The fight over the state and local deduction, with more than trillion at stake over a decade, is an early signal of the bruising battle ahead for Republicans trying to pass a tax bill The dispute over the state and local tax break echoes back to 1986, the last time Congress revamped the tax system.

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“I’m open to trying to make this bill fairer for the upper-middle-income taxpayers in high state and local tax states like California and New York,” said Senator John Kennedy, Republican of Louisiana. “I would like to help everybody, but again, you have to be mindful of the impact on the deficit and on the nation’s debt.”

Another provision being looked at for revision is the corporate alternative minimum tax, which was inserted into the Senate bill at the last minute to help pay for the tax cuts. But its insertion has raised concerns among business groups, which say it will undercut their ability to use valuable tax breaks like the research and development tax credit.

Mr. Kennedy said that “in a perfect world,” the corporate alternative minimum tax would be repealed, but he said that deficit concerns might not allow that to happen. “That’s only one half of the equation — the other half is can we afford it?” he said.

House Republicans fully repealed the corporate and the individual alternative minimum tax in their bill, and Mr. Brady made the case on Tuesday that doing so was the right decision.

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They’re part of a group of 52 Republicans -- more than enough to scuttle any bill that lacks Democratic support -- who hail from districts that use the state tax deduction disproportionately. Changing the state and local break instead of ending it would reduce that amount.

The House Republicans unveiled their tax bill today that everyone has been waiting and waiting for. It evidently preserves the popular 401K retirement account, lowers rates for many individual households, but trims deductions for state and local taxes .

“Both of them are very costly, and they add complexity,” he said.

Lawmakers are also considering raising the proposed corporate tax rate to 22 percent from a proposed 20 percent to help pay for additional changes. However, Senator Mitch McConnell, Republican of Kentucky and the majority leader, was cool to the idea on Tuesday.

“I think the corporate rate should be at 20,” Mr. McConnell said of the rate, which is currently 35 percent. “Both bills reflect 20 percent.”

The preliminary deliberations come as Congress faces a Friday deadline to extend government funding while it rushes to get the $1.5 trillion tax cut legislation to President Trump’s desk before Christmas.

Despite the optimism among Republicans about their tax plans, some data points on Tuesday suggested reasons for skepticism.

A survey of chief executives from the Business Roundtable found that while companies expect to see higher sales and to make more capital investments in the next six months, they anticipate that the pace of hiring will slow.

Arguments from Democrats that the Republican tax plan will mostly benefit the rich and big companies also appear to be taking hold with the general public. A Gallup survey released Tuesday showed that just 29 percent of Americans support the proposed tax changes in the bills.

Protesters organized by progressive groups packed the halls of the Capitol complex on Tuesday wielding signs that read, “Don’t cut health care to pay for corporate tax cuts.”

As the tax code rewrite approaches the finish line, Mr. Trump has taken on the responsibility of making sure that the momentum does not stall.

On Tuesday, he hosted a “taxpayer family event” at the White House for four families from across the country to talk about why they want lower taxes. Mr. Trump also invited Republican senators over for lunch to make sure that the process was moving forward smoothly.

“I call it ‘the mixer,’” he said of the final steps of aligning the House and Senate tax bills. “It’s a conference where everyone gets together and they pick all the good things and get rid of the things they don’t like.”

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