House Republicans' top taxwriter said Saturday he would add a federal tax break for state and local property taxes back into the tax plan set to be unveiled next week, bowing to pressure from members of his conference from blue states with high taxes.
Kevin Brady, the chairman of the Ways and Means Committee, said he was restoring a deduction for property taxes "to help taxpayers with local tax burdens."
The Trump administration and congressional Republicans had proposed to entirely eliminate the ability of federal taxpayers to deduct state and local taxes in order to pay for lower tax rates.
Saturday's concession, that the break will be partly kept, is a major one, although the exact terms of the compromise were not immediately known. The committee did not immediately respond to a request for comment.
Under current law, taxpayers can deduct both property and income or sales taxes paid at the state and local levels from their federal taxable income.
Allowing taxpayers to continuing deducting property taxes will lower revenues by $485 billion over the next decade under current law, according to the Treasury. It's not clear how much revenue would be lost under the GOP plan, because the bill is expected to include other provisions that will taxpayers' decisions to itemize deductions. But whatever the number, Republicans now will have to find another way to raise those funds or scale back their ambitions for the tax relief in the bill.
Brady's statement came after a key constituency, a group of homebuilders, said he had backed away from a deal to instead create a homeownership credit that would have been available to "tens of millions" of taxpayers, offsetting the hit to homeownership by the loss of the property tax deduction.
The homeownership credit also would have helped ameliorate the negative effects of the GOP plan on the mortgage interest deduction. Because the plan is to double the standard deduction, far more people would have taken the standard deduction rather than itemize deductions like the one for mortgage interest, undercutting its importance.
Granger MacDonald, the National Association of Homebuilders' president, bashed the House Republican tax plan in a statement, saying it would "hurt millions of hard-working American families and marginalize homeownership. The American people deserve better."
"I hope members of Congress will examine it closely to determine if they want it included before tax reform heads to the president’s desk," Brady said of the homebuilders' proposed credit.
Brady aims to release his bill on Wednesday, and then introduce it in his committee next Monday.
Saturday's concession is the first major change to be announced to the plan, which is being guided by a framework jointly agreed to by Republican leadership in the House and Senate and the Trump administration. In the coming weeks, the GOP will face pressure from lobbyists to retain other breaks and loopholes in the plan, jeopardizing the goals of lowering business and individual tax rates.