Coalition Firm on State Tax Deduction Amid Compromise Talks

Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...

By Che Odom

A coalition of groups fighting to preserve the federal deduction for taxes paid to state and local governments isn’t keen on compromise—but they may be forced to accept one.

Rep. Chris Collins (R-N.Y.), who supports the deduction, said Oct. 4 that he’s spoken to key Republicans who have signaled that the state and local tax deduction will be preserved in some form.

“It’s ironclad that you will not see a full repeal, which was initially within the framework. That there will be an accommodation. And it could be any one of six different flavors or combinations of flavors,” Collins said in an interview. “I’ve heard that the $200,000 middle and upper-middle income are the folks we’re trying to protect.”

Americans Against Double Taxation, a coalition of local government groups and private organizations, is steadfastly against any limitation on the deduction.

The deduction guards against “double taxation of households” and protects the “fiscal integrity of state and local governments,” and it should remain in the tax code “without limitation,” Andrew Koneschusky, spokesman for American Against Double Taxation, told Bloomberg BNA Oct. 4.

“Once these fundamental principles are violated, the SALT deduction would become a slippery slope that would be subject to constant chipping away whenever Washington needs money at the expense of millions of middle class taxpayers,” he said in an emailed statement.

This week Republican members of Congress have been publicly talking about capping the deduction for top earners or allowing individuals to choose between deducting mortgage interest or property taxes—all compromises to a big tax framework released last week that called for ending the deduction.

Mitigation Sought

Republicans in high-tax states are starting to feel the pressure to find a way, fast, to mitigate the effects of eliminating the state and local tax deduction as House leadership aims to usher a tax bill through the chamber this month.

“Last week started the really strong debate at looking for the pay-fors,” Rep. Mike Kelly (R-Pa.) told reporters Oct. 3. “Now people are just starting to hear and say, ‘oh, this affects me this way.’”

The Republican tax framework, released Sept. 27, would eliminate many deductions for individuals, including the break for state and local taxes. Eliminating the deduction is one of the largest pay-fors in the GOP plan to cut tax rates, but Republicans from states with higher taxes have expressed concern it could raise taxes for their constituents. They are trying to convince House Ways and Means Chairman Kevin Brady (R-Texas) and other GOP leaders to soften the blow of cutting the tax break.

With assistance from Sahil Kapur (Bloomberg)

To contact the reporter on this story: Che Odom in Washington at COdom@bna.com

To contact the editor responsible for this story: Jennifer McLoughlin at jmcloughlin@bna.com

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