Sometimes in legislation you get closer to a goal by taking a step away. That’s what I think House Ways and Means Chairman Kevin Brady did by coming out today for a tax deduction for state and local property taxes. That looks like a step back from the goal set forth by the Trump administration and congressional Republican leaders: eliminating the deduction for state and local taxes altogether, about which I wrote last week.
The subject there was the victory of the administration and the Republican leadership last Friday in the House passage, by a 216-212 vote, of the Senate budget resolution, which includes elimination of the state and local tax deduction. Passage means the Senate can pass such a bill with 50 Republican votes; Senate leaders don’t have to fear defections by Republican senators from the super-high-tax states (New York, New Jersey, Connecticut, California) because all those states’ senators are Democrats. However, there are 28 House Republicans from those states — more than enough, theoretically, to prevent the leadership from getting a majority for a bill eliminating the state and local tax deduction.
But not all those 28 House Republicans voted against the budget resolution: As my Washington Examiner colleague Tim Carney points out, 11 of the 20 Republican votes against the resolution were cast by members from New York and New Jersey. But note that only one of them, Dan Donovan of Staten Island, comes from a district in New York City, where the combined state and city income tax rate is very high and property taxes are surprisingly low. The other 10 come from suburban or Upstate districts, like Peter King and Lee Zeldin from Long Island.
State income tax rates in New York and New Jersey are high, but property taxes in Long Island and Upstate New York are among the highest in the country, and in much of New Jersey they’re even higher. That means that for many of these 10 Republicans’ constituents, deductibility of the property tax means much more than deductibility of the state income taxes. And many of those high earners (like Lee Zeldin’s Hamptons constituents) are liberal Democrats anyway.
Maintaining property tax deductibility will reduce the pressure on local governments to reduce spending and crack down on public employee union bonanzas. But eliminating state and local income tax liability will put huge pressure on the public employee unions, because about one-third of state and local income tax revenue comes from the top 1 percent of earners. One example: New Jersey stood to lose 1 percent of its total state government revenue when billionaire David Tepper moved to Florida. Brady’s move is an obvious attempt to win the votes of the 11 New Yorkers and New Jerseyites who defected on the budget resolution, to make up for any votes of those who backed the budget resolution but don’t want to identified as supporting the final product.