Republicans Reverse, May Allow State Income Tax Deduction
Posted by Tyler Durden on December 6, 2017 10:15 pm
Tags: Alternative minimum tax, Economy, Estate tax in the United States, GOP House, Income tax, Itemized deduction, Joint Committee on Taxation, Kevin Brady, Pay-as-you-earn tax, Politics, Senate, Social Issues, State income tax, tax, Tax Cuts and Jobs Act, Taxation in the United States
Categories: Alternative minimum tax Economy Estate tax in the United States GOP House Income tax Itemized deduction Joint Committee on Taxation Kevin Brady Pay-as-you-earn tax Politics Senate Social Issues State income tax tax Tax Cuts and Jobs Act Taxation in the United States
One day after the top Senate Republicans realized they probably should have read the tax bill they voted for in the deep of the night on Saturday morning, and announced they are seeking to repeal the Alternative Minimum Tax they passed just days earlier, realizing it could punish growing companies, they now also appear to be reversing on the controversial repeal of State and Local Tax Deductions, and as Bloomberg reports, Republican lawmakers “are discussing a compromise on state and local tax deductions that would allow taxpayers to deduct state income tax, House Ways and Means Chairman Kevin Brady said.”
According to one proposal being discussed, taxpayers could deduct both their state income tax and state and local property taxes up to a combined limit of $10,000. This differs from the currently circulating bills which preserve the individual deduction for state and local property taxes – capped at $10,000 – but not for income taxes. The push to include income taxes could help those in high-tax states who don’t own property.
Mitch McConnell confirmed he’s open to tweaking final tax legislation to appease lawmakers who want to let constituents deduct state income taxes: “There’s some in the House who would like to see that applied not just to property, but to income tax, you know, where you can sort of pick which state and local tax you want to deduct,” the Kentucky Republican said on conservative radio host Hugh Hewitt’s show. “That sounds like a kind of reasonable idea.”
Summarizing the conference process, McConnell said “There are a lot of these things that are floating back and forth,” adding that he cannot predict “exactly how the final product turns out” once the House and Senate complete their conference negotiations.
Indicating that SALT repeal was conceived as an entirely political move meant to punish “rich”, predominantly blue states, House Republican leaders – hearing significant pushback from their own constituents – signaled openness to “relieving the burden for residents of high-tax states.”
Plans for the so-called SALT deduction have prompted more tension in the House than in the Senate, because there aren’t any Republican senators from states with the highest taxes. Twelve out of the 13 GOP House lawmakers who voted against the bill last month were from high-tax states. Still, including the property tax deduction in the Senate bill was a last-minute change to help get the support of Republican Senator Susan Collins of Maine.
Two House members from New Jersey — Leonard Lance, a Republican, and Josh Gottheimer, a Democrat — plan to submit a joint proposal to the conference committee that would maintain SALT in its entirety.
The lawmakers said repealing the break will lead to “double taxation” and “pay for reform on the backs of just a few states that already pay significantly more than other states in federal taxes.” One of those net donor states, they note, is New Jersey.
Brady, who’s overseeing the House-Senate conference committee for tax negotiations, said Wednesday that allowing income tax deductions is one of five options on the table. Others include potential adjustments to rates, brackets, the individual alternative minimum tax and the family tax credit.
There is just one problem with the bill which is already cutting it dangerously close to the $1.5Tn extra deficit limit: where does the money come from?
As Bloomberg writes, it’s unclear how lawmakers would pay for any such modifications to the state and local tax break. Preserving the property tax deduction up to $10,000 would cost about $148 billion over a decade, according to the Joint Committee on Taxation. McConnell has been said to want any proposed changes presented with ways to pay for them.
Among the proposed revenue offset include changing estate tax rules about stepped-up basis and closing what they call a loophole for charitable donations to private foundations as ways to offset some of the lost revenue that would result from keeping SALT.