Republicans Make A Political Calculus On State And Local Tax Deduction

There are winners and losers, and some Republicans just want to make sure their constituents don't lose too much.
Rep. Chris Collins (R-N.Y.) is a Republican in one of the three Democratic states that would be most adversely affected by a complete repeal of the state and local tax deduction.
Rep. Chris Collins (R-N.Y.) is a Republican in one of the three Democratic states that would be most adversely affected by a complete repeal of the state and local tax deduction.
Tom Williams via Getty Images

WASHINGTON ― Republicans from some blue states want their constituents to believe they’ve extracted major tax reform concessions from GOP leadership on the state and local tax deduction, a write-off that mostly benefits highly taxed areas. What may be closer to the truth is that it’s those Republicans, not party leaders, who are retreating from their demands ― and that could have dire political consequences for passing tax reform, as well as for the makeup of the House after the 2018 elections.

The story goes that, facing a possible tax reform mutiny from some Republicans, GOP leaders have backed down from a key revenue-raising feature of their proposal: the elimination of the state and local tax deduction.

Leaders may be backing off on completely eliminating the so-called SALT deduction. But according to a member familiar with the discussions, whatever change Republicans come up with won’t change the fact that lawmakers expect to bring in big money by scaling back the SALT deduction, the complete elimination of which the Tax Policy Center says would generate an estimated $1.3 trillion over the next 10 years.

When HuffPost asked Ways and Means Chairman Kevin Brady (R-Texas) about the potential changes, Brady said lawmakers were still in discussions, reverting back to vague platitudes about Republicans making sure they lower the tax burden for families from every state.

That may be the standard, but Republicans in Congress and the White House have thus far refused to promise everyone’s tax bill is going down, partly because a major offset for the cost of their tax overhaul is eliminating the SALT deduction. Financing your bill’s winners by picking some losers in mostly blue states could be a successful strategy in the Senate ― save with Sen. Rand Paul (R-Ky.), who seems to be insisting no one’s taxes go up. But in the House, the change could put a number of vulnerable Republicans in a tough position, especially if taxes actually do go up for a significant number of their constituents.

The Cook Political Report currently rates 15 GOP-held seats as toss up, lean or likely Republican in California, New York and New Jersey ― the three states most adversely affected by repealing the state and local tax deduction. There are also other individual districts in states with politically vulnerable members that greatly benefit from the deduction, according to the Tax Policy Center. For instance, Barbara Comstock’s Virginia district has the sixth highest percentage of filers who benefit from the write-off, with Peter Roskam and Randy Hultgren’s Illinois districts ranking 12th and 14th respectively.

The amount of money and sheer number of individuals benefitting from the deduction make it difficult to believe that, even before there’s a bill, even with other tax cuts like doubling the standard exemption, everyone in those districts will be a winner. And there’s little way to spin a constituent’s tax bill going up. Voters will know.

But that doesn’t seem to be bothering many of these Republicans.

Rep. Chris Collins (R-N.Y.), the first member to endorse Donald Trump’s presidential run and still one of the president’s most enthusiastic cheerleaders in Congress, told HuffPost this week that Brady and Majority Leader Kevin McCarthy (R-Calif.) had given him “assurances.”

“There’s going to be an accommodation made on the state and local taxes,” Collins said, adding that the fix could be any number of things, such as capping how much someone could deduct in state and local taxes or just letting someone deduct either their property taxes or their mortgage interest.

There is no agreement, however, on what the clawback actually will be, or how much it will put back in the pockets of those taxpayers. If the responses from some Republicans from high-tax states are any indication, it might not have to be that much.

Doug LaMalfa (R-Calif.) told HuffPost he would have to see the specific math before committing to anything, but that he wasn’t necessarily against a tax reform that kept taxes flat for his constituents.

“If it has got the other offsets with the increased standard deduction, and it ends up basically neutral to those middle-income taxpayers, then why wouldn’t we?” LaMalfa asked.

“If people don’t like it in California, which they’re voting with their feet now on the economic and regulatory conditions they’re dealing with there, they’ll move in a different direction,” he said.

“People choose to live in the states based on different criteria,” LaMalfa added, “so I don’t know how you can completely equitably distribute everything.”

LaMalfa’s district (the very northern tip of the state) and political situation (R+11) are obviously different than those of an Orange County Republican like Darrell Issa (R+1), who has far wealthier constituents with more expensive homes and taxes. Rep. Steve Knight, who represents an even district with parts of LA County, said the state and local deduction was “the biggest issue” for him on tax reform.

But GOP House leadership’s job isn’t necessarily to win over all 28 Republicans from these three states. The mission is to get the bill passed. Speaker Paul Ryan (R-Wis.) can lose 22 Republicans and still move tax reform to the Senate.

If that means Republicans lose votes from some of their more vulnerable members in high-tax states, there’s room for leadership to hand out those passes without tearing apart a major pay-for in the bill. And not tearing apart the bill is a good idea when the vast majority of Republicans, including conservatives, are onboard without ever having seen a bill.

Leadership just has to make a cut to the SALT deduction palatable enough to win over some of the Republicans from these states. And the truth is, within these blue states, the write-off affects districts differently, and there are also different competing political consequences in those districts for opposing Trump’s agenda.

In New York particularly, there are a number of Republicans who could make a calculation that it would be worse politically to oppose tax reform than to raise taxes on some constituents.

In a nod to Trump’s rhetoric, Rep. Tom Reed, who represents the southwest portion of New York, said he’d be comfortable raising taxes on the richest 1 percent to mitigate the state and local tax deduction. “There’s a compromise position here that I think can work,” he said.

Republicans seem to be moving toward keeping the top 39.6 percent income tax bracket for the richest Americans. There is also talk of bringing back the estate tax in some form, though it might be tougher to convince Trump to endorse that idea than fourth bracket. Republicans also have a long list of ways they can fudge their numbers, with unrealistic growth rates that will make tax cuts appear to pay for themselves. In the end, the biggest loser from this tax overhaul might be the national debt.

Still, there are some Republicans who could be a problem.

Unprompted, Peter King (R-N.Y.), who represents part of Long Island, suggested that fellow New York Republican Collins might take less than other Republicans on the SALT issue.

“Collins was too quick,” King said. “To me, there has to be changes. We have to see what they are. I’m not signing off on anything.”

King said his standard would be that his constituents come out “at least even,” perhaps with some cuts to their tax bill. “They can’t have the rest of the country get a tax cut and then they don’t,” King said.

We already know that even with changes, some states, some districts and some individuals will make out better than others. And we know some members will be harder to get than others. Perhaps the toughest could votes to get could be the five New Jersey Republicans, as Trump doesn’t enjoy the same amount of popularity in New Jersey as in upstate New York, and those districts benefit greatly from the SALT deduction.

Last week, after Republicans released their tax reform framework, Rep. Leonard Lance (R-N.J.) sounded doubtful about voting for a bill that took away the state and local write-off, saying the provision was very important for his district and his state.

“It is a very significant deduction for New Jersey,” Lance said. “Very significant!”

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