House Republicans are considering allowing individuals to deduct a certain dollar amount of state and local property taxes as part of a compromise to keep blue-state Republicans on board with the tax reform package, key lawmakers said Wednesday.
New York Rep. Chris Collins said taxpayers would be allowed to deduct an amount of property taxes from their federal returns, which he suggested could be $10,000. Coupled with the retention of the mortgage interest deduction, that provision could assuage the fears of lawmakers from high-tax states such as New York and New Jersey that the legislation could raise taxes on some of their constituents.
Late Wednesday afternoon, House Ways and Means Committee Chairman Kevin Brady said his panel was nearing a deal but declined to spell it out. "I think we made big progress on restoring the property tax deduction as part of state and local," he said. Deductions for state and local income and sales taxes appear to remain on the chopping block.
The blue-state Republicans’ fears have helped snarl the rollout of the tax reform bill, which was delayed until Thursday. It was one of the issues outstanding as late as Wednesday afternoon. A House Ways and Means Committee spokesman said the bill was scheduled to be released Thursday.
The compromise, allowing individuals to deduct up to a certain amount of property taxes, would be meant to relieve concerns about the legislation raising taxes on middle-income earners who own homes.
Tom MacArthur, a New Jersey Republican who has been involved in negotiations over a possible compromise, said Wednesday night that "directionally, there’s been progress. I don’t think we’re there quite yet."
He said that he favored the structure of the proposal, but was still negotiating the level of the cap on property deductions. Off the House floor, he explained that he wanted the cap set at a level that would protect the "vast majority" of homeowners.
Taxpayers can choose either the standard deduction, which would be nearly doubled in the GOP bill, or itemize deductions for specific items. By being able to claim the property tax deduction and the mortgage interest deduction under the compromise deal, some homeowners would be better off than if they were able to take only the enlarged standard deduction.
“This means a few more people may itemize, because now you got $10,000 in property taxes that you could add on to your mortgage interest,” Collins said, noting that most people would opt for the enlarged standard deduction that Republicans are including in the bill.
One major question is whether the blue-state holdouts would vote for a compromise on the state and local tax issue without assurances that the Senate would not strip such a deal out of its version of the legislation. Rep. Peter King, a Long Island Republican, said such an assurance would be needed to vote for a tax reform bill. He was one of 11 Republicans to vote against budget passage to try to stop movement toward a tax bill that would end the state and local deduction.
Collins, who did vote for the budget, said Wednesday that he was confident the deal would be upheld in the Senate. “I’m comfortable the White House is on board right now. I think it’s safe to say the Senate would as well,” he said.
Nevertheless, senators have made no such assurances.
Sen. Orrin Hatch, the Utah chairman of the Senate Finance Committee, said he would start working on his legislation wanting to support whatever Brady did in the House bill, but he made no promises. “This is complex stuff,” he said. “I can't promise I'm going to go one certain way when there might be feelings otherwise.”
One reason the Senate might depart from any House compromise is that there are no Republican senators from New York, New Jersey, California, or some of the others belonging to the top handful of most-taxed states. As a result, senators might not feel as much pressure as representatives to maintain deductions for state and local taxes.
“I suspect it will not be as big of an issue in the Senate, and the Senate may therefore eliminate the SALT deduction,” said Sen. Mike Crapo, R-Idaho, a member of the Finance Committee, using an acronym for the deduction. “But again, that’s just speculation.”
A bigger issue might be political opposition from homebuilders, who have said they will oppose tax legislation without a deal more favorable to the industry.
If the deduction is not restored to the bill, “we’re going to oppose this bill tooth and nail,” National Association of Homebuilders CEO Jerry Howard said Monday on Bloomberg.