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House ‘Committed’ to Retaining Some State and Local Tax Deductions, Chairman Says

The House of Representatives is “committed” to preserving some of the deductions for state and local taxes that Americans can claim on their federal taxes, House Ways and Means Committee Chair Kevin Brady (R-TX) said while speaking to Chris Wallace on Fox News Sunday. That highlights some distance between the House and Senate on one of the most contentious components of the GOP tax reform package, but it’s not quite as dramatic as it might sound.

Both Brady and Wallace seemed to have chosen their words carefully in the exchange. The House version of the tax reform bill preserves a $10,000 deduction for state and local property taxes, while the Senate bill preserves no deductions. Wallace only asked Brady if the House bill will include the “total elimination” of the deductions, so the tightly capped property tax deduction is enough to allow Brady to say no. But Brady did not mention state and local income tax deductions, which recent versions of the House bill do not preserve.

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Taxpayers in liberal havens such as New York and California claim the majority of the total state and local tax deductions taken each year, while more conservative states such as Texas generally have fewer regional taxes, including state income taxes. Conservatives often see that as an unfair advantage to the mostly Democratic locales with higher local taxes, a position President Donald Trump articulated in October – though states with high local taxes also tend to be net contributors to the federal budget.

Those states do also have Republican lawmakers, and at least one of them — Long Island Republican Representative Peter King — is committed to opposing the current House bill. King also appeared on Fox News this Sunday, and said he is opposing the current bill because of the elimination of the state and local tax deductions. King described the change as a tax hike on the middle class, and as “class warfare” against “hard-working people” who are “going to get screwed by this bill.”

That sort of talk from Republicans is making investors nervous about GOP reforms, which promised large cuts to corporate tax rates that they say will in turn raise wages. Those cuts need to be funded by hikes elsewhere, but rising dissent over issues like state and local deductions is conjuring visions of the failed push for health care reform.

Meanwhile, on the other side of the aisle, Democrats are showing a united front on opposing the tax plan. Senate Minority Leader Chuck Schumer (D-NY) Sunday described the proposed deduction changes as “a dagger to the heart of New York” and New Jersey. Senator Kirsten Gillibrand (D-NY) has lambasted the corporate tax cuts, which would bring U.S. rates in line with those of other advanced economies, as “corporate welfare.”