As House Republicans move forward on a second round of tax cuts this week, a handful of GOP members from northeastern states are urging their leadership to abandon any effort to lock in a new cap on the federal deduction for state and local tax paid, saying the new limit disproportionately harms their states.
“We urge leadership to stop any effort to permanently cap the deduction for state and local taxes or we would be forced to oppose the bill,” reads the letter to Speaker Paul D. Ryan and Ways and Means Committee Chairman Kevin Brady.
The letter was signed by Reps. Peter King and Dan Donovan of New York, along with Reps. Frank LoBiondo and Chris Smith of New Jersey.
The four members were among a dozen House Republicans who voted against the original tax cuts in December, many of them citing the new $10,000 cap on the deduction as one of the primary reasons.
The federal deduction for state and local taxes, or SALT in tax-speak, tends to be more relevant to higher-tax states like New York and New Jersey, where middle-to-upper income earners are more likely to take advantage of writing the taxes off on their federal returns.
The members said that changes to the deduction will hurt local real estate markets, and could increase the cost of local public services as taxpayers potentially move out of high-cost areas.
“We all agree that individual taxpayers should be treated the same as corporations and deserve to have their tax cuts made permanent but we cannot sit idle as a deduction that benefits Americans across the country is permanently dismantled,” the members wrote.
The “Tax Reform 2.0” legislation Mr. Brady helped roll out this week aims to permanently extend the tax cuts for individuals in the new tax law, along with the $10,000 cap.
Mr. Brady and other Republicans have defended the cap, saying that the unlimited deduction effectively subsidized blue states’ higher state and local taxes.
The individual tax cuts were written to expire after 2025 in order to comply with budget rules, while the law permanently lowered the corporate tax rate from 35 percent to 21 percent.
House Republicans can afford some GOP defections and still pass the new legislation.
But unlike the last round, the GOP doesn’t have the benefit of a fast-track tool allowing them to thwart a potential filibuster in the Senate because Congress hasn’t passed a 2019 budget, making prospects for getting the package to President Trump’s desk highly unlikely.
New York, New Jersey, Connecticut and Maryland have filed a federal lawsuit arguing the cap is unconstitutional. The Treasury Department also issued guidance recently that will likely curtail some of the attempted workarounds states have passed in response.
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