WASHINGTON – The top House Republican on Thursday blasted high-tax states that deliver billions to the federal government as he faced a backlash from rank-and-file GOP lawmakers over a sweeping tax-cut proposal.
But beyond the tough rhetoric from Speaker Paul Ryan, disgruntled lawmakers met privately with Republican leaders and reaching for possible compromises to break the impasse. The GOP lawmakers from high-tax states oppose the plan’s proposal to repeal the popular federal deduction for state and local taxes. It’s used in large numbers by residents of their states.
With Republicans splintered, the future of the $6 trillion tax overhaul plan is threatened by the GOP defections. The success of the package is a political imperative for Republicans who have pinned their hopes on a big legislative achievement to help them retain control of Congress in next year’s elections.
Ryan went on the offensive against high-tax states like California, New York and New Jersey even though the GOP lawmakers from those states need to be brought on board to support the tax overhaul plan.
But Ryan contended the rest of the country is “propping up profligate, big-government states” that levy high taxes on their residents and spend recklessly.
“States that got their act together are paying for states that didn’t,” the Wisconsin lawmaker said at an appearance at the conservative Heritage Foundation.
In fact, California, New York and New Jersey send many billions more in taxes to Washington than they get back in federal spending, new data show. Divided by total state residents, New York gets back 81 cents for every $1 it pays in, New Jersey receives 74 cents and California 96 cents, according to an analysis released last month by the Rockefeller Institute of Government.
New York contributed $48 billion more in taxes to the federal government than it received in government spending – the biggest deficit the analysis found. New Jersey gave $31 billion more in taxes than it got back and California $17 billion more, the data show. The figures were for the budget year ending Sept. 30, 2015.
The state-local deduction is claimed by around 44 million people and costs the government an estimated $1.3 trillion in lost revenue over 10 years.
“There’s a number of proposals on the table,” said Rep. Tom MacArthur, R-N.J., emerging from the meeting of his colleagues from high-tax states with GOP leaders, including House Majority Whip Steve Scalise, R-La., and Rep. Kevin Brady, R-Texas, head of the tax-writing Ways and Means Committee.
“There’s more than one way to skin this cat,” MacArthur said, but added, “It has to be soon.”
MacArthur and others who attended wouldn’t specify what compromises were being considered short of complete repeal of the deduction. One possibility they were asked about would cap the deduction at a single taxpayer’s annual income of $400,000 ($800,000 for a married couple).
That would affect just the top 1 percent of taxpayers, according to Amir El-Sibaie, an analyst at the business-friendly Tax Foundation. It could bring in $481 billion in revenue over 10 years, compared with an estimated $1.8 trillion if the deduction were fully repealed, El-Sibaie calculates.
Opposition to ending the deduction has produced an unusual alliance of the Republican lawmakers from high-tax, Democratic-leaning states; state and local government officials; public employee labor unions; and business groups like Realtors. Wary of the financial pinch their constituents and members could sustain from losing the deduction, they are pressing the Trump administration to reconsider.
Some opponents contend that repealing the deductions would subject people to being taxed twice and would amount to a federal revenue grab on the backs of homeowners who pay property taxes. And governors like New York Democrat Andrew Cuomo, a potential 2020 presidential candidate, have rallied against the change.
“There will be a transfer of wealth of over a trillion dollars to the federal coffers,” said Matt Chase, executive director of the National Association of Counties.
Randi Weingarten, president of the American Federation of Teachers, said eliminating the deduction would not only “devastate funding for public schools, infrastructure, law enforcement and other vital services” but also boost taxes on the middle class. “For what? Tax cuts for the wealthy.”
The White House has argued that the plan is focused on helping middle-class workers, contending that lowering corporate rates will boost jobs while the tax cuts and simpler tax code will reduce their burden.