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State and Local Taxes Roil Lawmakers as House Nears Budget Vote

Posted on October 25, 2017 by Stephen K. Cooper, Dylan F. Moroses

Some House Republicans raised doubts October 24 about House approval of the Senate budget resolution unless GOP leaders deliver specific details on how tax reform will affect their constituents.

Chief among their list of unanswered questions is the fate of the deduction for state and local taxes, said Rep. Chris Collins, R-N.Y., who told reporters that Republicans from high-tax states like New York, New Jersey, and California are still waiting for House leadership to come up with a proposal that protects their constituents.

House lawmakers are expected to consider the Senate’s fiscal 2018 budget resolution (H. Con. Res. 71) on October 26, rather than going to conference with their own version of the resolution that calls for $200 billion in spending cuts. The Senate budget resolution, which passed that chamber October 19, provides reconciliation instructions that allow simple majority passage of tax reform legislation that loses $1.5 trillion over a decade.

House Republicans expect to pass tax reform legislation by Thanksgiving, followed by Senate passage and President Trump’s signature before the end of 2017, House Speaker Paul D. Ryan, R-Wis., said during his press briefing with House leadership.

Collins said that besides the state and local tax deduction, lawmakers lack details on income tax brackets, a potential millionaires’ tax, estate taxes, and the size of the child tax credit. “There are many of us frustrated because we don’t have the details,” Collins told reporters. Later, Collins said that he would support the budget as a potential compromise on the state and local tax (SALT) deduction began to take shape.

Rep. Peter T. King, R-N.Y., said earlier in the day that he planned to vote against the Senate budget on the assumption that the SALT deduction would be eliminated. “We’ve haven’t seen all the numbers yet. We haven’t seen what the package will be. The average family in my district is out $1,900,” he said, adding that the Senate budget language is even more restrictive against the deduction. “As of now, all the indications are we’re going to get screwed on SALT,” he said. 

But House Ways and Means Committee member Tom Reed, another New York Republican, said he was amazed by the “misinformation” and “hypocrisy” of other Republicans who are now defending the state and local deduction, which primarily benefits the top 1 percent of wealthy taxpayers.

Reed acknowledged that compromising on repeal of the state and local tax deduction would bring in less revenue, but said those changes can be debated in the committee’s upcoming markup. “It’s critical that we start getting information out to members so that they have a fuller picture of where we’re trying to get to based on the input they have provided us,” he said.

To prepare for next week’s unveiling of details to Republicans, GOP members of the Ways and Means Committee held a “walk through” of the tax bill to gauge member support.

Ways and Means member Kristi L. Noem, R-N.D., said that during the meeting lawmakers talked about issues such as leveling the playing field in the energy sector and whether to provide incentives through the tax code, as well as how to repeal the estate tax without increasing the federal deficit. 

Committee Republicans will likely vote on whether to eliminate or keep specific provisions later this week in hopes of looking at legislative text the week of October 30. Meetings are scheduled for October 25, October 30 and October 31, House staffers said.

Following an afternoon series of House floor votes, Ways and Means member Mike Bishop, R-Mich., told Tax Analysts that the “pieces are coming together” on final tax legislation. “Middle-class tax reform is very important to my district — making sure that we’re true to our word on that,” Bishop said.

Bishop, who sponsored the Mobile Workforce State Income Tax Simplification Act (H.R. 1393), which would prohibit a state from taxing the wages of nonresident employees working in the state for fewer than 30 days, said he would like to see his bill become a part of the greater tax reform discussion, but is reserving the proposal for a later debate. “What we don’t want to do is get this whole thing clouded, although it left here with a lot of support, [and] I think we have 58 sponsors in the Senate right now. I just don’t want to create a distraction on our main focus.”

Democrats Criticize GOP Efforts

Ways and Means member Brian Higgins, D-N.Y., predicted that House Republicans will mark up their tax legislation without revenue estimates from the Congressional Budget Office or the Joint Committee on Taxation. Republicans do not want a timely CBO estimate because they know that tax cuts will not pay for themselves or provide $4,000 to the average taxpayer, Higgins told Tax Analysts. “It’s fraud being perpetrated on the American people.”

Republicans are moving so quickly that lawmakers will not have time to debate the long-term consequences of tax reform and its impact on middle-income Americans, said Ways and Means member Linda T. Sánchez, D-Calif. “So just a word of caution to my Republican colleagues: you will reap what you sow in tax reform,” Sánchez told reporters.

Ways and Means member Joseph Crowley, D-N.Y., speculated that some Republicans may believe that failing to pass tax reform this year will cost them control of the House in the 2018 elections. “It’s really a call to arms to their folks, whether they agree with the bill or not, that they have to vote for it because their political survival . . . is on the line,” Crowley told reporters, suggesting that Republicans were not putting forward the best policy to help Americans.

‘Rothification’ Under Consideration

Leaving a Senate GOP conference luncheon that Trump attended, Sen. Ted Cruz, R-Texas, told reporters he shared similar views with the president on the tax treatment of retirement savings accounts. “I agree with the president that we should not be messing with 401(k)s. 401(k)s have been a tremendously effective tool for helping working men and women save for retirement. I think it was a bad idea when it was floated to limit those contributions, and I agree with the president taking that off the table. I think that was helpful guidance in this process.”

Cruz predicted that more discussions on tax policy compromises will surface, especially in the coming weeks. “The next couple of months are going to feature considerable negotiation and discussion to get to consensus. I believe we will get there.”

The Senate Finance Committee is reviewing the estate tax as part of tax reform discussions, Sen. John Thune, R-S.D., told reporters October 24 before heading to a committee meeting. “There are a lot of different ideas that have been proposed, none of which has been agreed or settled upon at this point,” he said. “The discussions continue. But we think that people who work hard in this country over their lifetimes shouldn’t have to pay taxes throughout their entire lives and then get hit again at death.”

David van den Berg contributed to this article.

Follow Stephen K. Cooper (@ScoopOnTaxes) and Dylan Moroses (@DMoroses3244) on Twitter for real-time updates.