GOP Leaders Consider Changing, Not Ending, State Tax Break

(Bloomberg) -- Republican leaders are considering putting limits on the $1.3 trillion state and local tax deduction -- instead of eliminating it -- in order to secure votes from members in the hardest-hit states.

House Ways and Means Chairman Kevin Brady discussed options at a dinner Monday night with several GOP members who have defended the break, known as the SALT deduction. They talked about measures including capping the deduction for top earners, and allowing individuals to choose between deducting mortgage interest or property taxes -- but not both -- when calculating their taxes, according to several dinner attendees.

“We want to make sure that we're not addressing the concerns of an individual making $5 million a year living in a $40 million dollar home or condo,” said Representative Chris Collins of New York, who said he attended the dinner.

“And that's where the capping could come in,” said Collins, an ally of President Donald Trump. “You can phase things out as incomes go up which addresses the attack that this would be a tax cut for the wealthy.”

The purpose of the meeting with Brady was to find “a way to get the California, New York and New Jersey Republicans on board for tax reform,” according to Collins.

“They're going to need our votes,” he said.

‘Optimistic Feeling'

Republican lawmakers including Representative Peter King, who represents Long Island, and Leonard Lance of New Jersey, have indicated resistance to a bill that would end the state and local tax deduction. King said he won't vote for a tax bill that includes the deduction's repeal; Lance said he'd vote against a bill based on the GOP framework as it stands. They're part of a group of 52 Republicans -- more than enough to scuttle any bill that lacks Democratic support -- who hail from districts that use the state tax deduction disproportionately.

The tax framework released by the White House and Republican leaders last week lacks extensive details about ways to offset its rate cuts with additional revenue. It proposes that most itemized deductions for individuals should be eliminated, but would protect breaks for mortgage interest and charitable giving.

Ending the state and local tax break is estimated to generate $1.3 trillion in revenue over 10 years, which would help offset proposed tax-rate cuts. Changing the state and local break instead of ending it would reduce that amount.

Collins said Brady was “very open” to his concerns, and he “came away with a very good, optimistic feeling there'll be an accommodation made for the SALT deduction.”

“Chairman Brady hosts regular dinners with members of the House Republican conference to talk about important tax reform policy issues,” Emily Schillinger, a Brady spokeswoman, said in an email. “He hosted one last night and members did discuss the state and local tax deduction.”

Representative Rodney Frelinghuysen, a New Jersey Republican who chairs the Appropriations Committee, said members in "six or seven states" are concerned about the state and local tax deduction.

“We're going to work our way through that,” he said.

Middle-Income Americans

Representative Jeff Denham of California said his state's high taxes would put his constituents at a disadvantage if the state and local break is eliminated.

"I don't want to penalize Californians," said Denham, who represents a swing district in San Joaquin Valley. "The question is: Should people in my district and throughout California be able to have just as big of a tax cut as the rest of the country?"

Senator Bob Corker, a Tennessee Republican who says a tax bill mustn't add to the deficit, said Monday he thinks the White House is showing "softness" on the state and local break, arguing that it's "the easiest one" politically for Republicans to eliminate. High-tax states tend to lean Democratic, and GOP leaders are not counting on their support for a tax overhaul.

White House economic adviser Gary Cohn said Friday that scrapping state and local deduction was “not a red line” for Trump.

--With assistance from Erik Wasson

To contact the reporter on this story: Sahil Kapur in Washington at skapur39@bloomberg.net.

To contact the editors responsible for this story: Alexis Leondis at aleondis@bloomberg.net, John Voskuhl