State leaders’ reactions to the Republican tax reform framework split largely along party lines, with most Republicans welcoming the proposed tax cuts and a simpler tax code and Democrats protesting the presumed elimination of the state and local tax (SALT) deduction.
“I am pleased President Trump and Congress are coming together to address our broken federal tax system,” Iowa Gov. Kim Reynolds said. “We need a system that works for our entrepreneurs, small business owners and families struggling to make ends meet as we build a better Iowa.”
“This is a plan that works for New Hampshire,” Gov. Chris Sununu said of the proposal.
Meanwhile, New York Gov. Andrew Cuomo (D) denounced the framework, saying that eliminating the SALT deduction would be “highly damaging and devastating” for his state's residents. New York ranked second highest among states whose residents deduct state and local income taxes, totaling roughly $68 billion per year.
“It is the height of hypocrisy,” Cuomo said. “You have an administration that wants to cut taxes, and now they literally want to tax you on the taxes you pay. I believe it’s unconstitutional.”
A September 28 analysis by Cuomo’s office said the repeal of the SALT deduction would increase the federal income tax liability of 3.3 million New York taxpayers by $17.5 billion. On average, New Yorkers would have to pay $5,300 more in federal income taxes.
Cuomo called on New York's congressional members to "do whatever you have to do to stop this," and said, "I don't care if you have to filibuster. I don't care if you have to lay across the Senate floor and force them to remove you bodily, from the chamber. This cannot happen," Politico reported.
“This skeletal nine-page plan is short on substance and specifics, and a comprehensive analysis requires much more information than what has been provided,” said H.D. Palmer, spokesman for the California Department of Finance. “It appears that this regressive proposal could do great harm to larger states like California . . . and further widen income disparities between the rich and poor,” he added. “Moreover, the elimination of state and local tax deductibility could cost California’s taxpayers an estimated $25 billion annually.”
Massachusetts Gov. Charlie Baker (R) appeared to buck the trend. In a statement to Tax Analysts, Baker spokesman Billy Pitman said that “while there are significant concerns about the impact the repeal of the state and local tax deduction would have on Massachusetts’s families, the administration looks forward to further details of the plan as this process begins.”
However, Jonathan Williams of the American Legislative Exchange Council told Tax Analysts that many of the organization’s legislator members support the tax reform framework. “They would very much be OK with getting rid of the SALT deduction in exchange for lower rates,” Williams said.
ALEC in a September 28 statement said that “policymakers in Washington can learn some valuable lessons from the highly successful tax reform case studies like North Carolina, Florida, Texas, and Indiana.”
Richard Auxier of the Urban-Brookings Tax Policy Center told Tax Analysts that it should be made clear that tax cuts alone do not automatically result in economic growth, citing Kansas.
While President Trump lauded Indiana’s tax cuts as the reason for its economic growth, “that’s a little misleading,” Auxier said, adding that Indiana cut taxes and had economic growth but that there were other factors involved that contributed to that growth. “To claim it was just tax cuts is incorrect,” he said.
The nine-page tax reform framework still leaves many unanswered questions, making it difficult for states to know or predict its potential impact, according to Auxier. Most notably, the framework does not specifically mention repealing the SALT deduction. “It would be hard for a state right now to [gauge] what this means for them going forward,” he said.
Williams said it is very likely that Congress will pass and Trump will sign a “tax reform or tax relief bill by early 2018.” The question is whether it will be a “comprehensive rewrite of the tax code that is being currently proposed or more of a net tax reduction to get economic growth,” he said.