Mnuchin Comment on State-Local Deduction Rankles Tax Coalition

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By Che Odom and Allyson Versprille

Treasury Secretary Steven Mnuchin’s weekend statement that the administration is trying to end the federal deduction for taxes paid to state and local governments drew pushback from a coalition organized around the issue.

Mnuchin’s comments on the state and local tax deduction are “100% wrong and backwards,” Americans Against Double Taxation said in a statement released Sept. 24.

Mnuchin told CNN that the administration has been working with Republican and Democratic leaders to release a tax reform plan this week that includes a middle-income tax cut and aims to create jobs and make businesses more competitive.

“And as it relates to the high end, there are lots of changes,” Mnuchin said. “We’re getting rid of lots of deductions. We’re trying to get rid of state and local deductions to get the federal government out of subsidizing it.”

Mnuchin said the plan “will not reduce taxes on the high end.”

‘Federal Money Grab’

Americans Against Double Taxation, a coalition of local government groups, the National Association of Realtors, and the American Federation of Teachers, said in response that the state and local deduction protects local governments and “44 million taxpayers from exactly the kind of federal money grab the Administration appears to be proposing.”

The groups said the deduction “helps support necessary infrastructure investments and vital state and local public services, including education and public safety, that benefit all Americans. If Secretary Mnuchin has his way, millions of middle income homeowners will pay higher taxes, and vital public sector services will be at risk.”

The groups in the coalition, including the National Governors Association, have been lobbying Republican members of the House and the White House to preserve the deduction.

Ending it could raise between $1.26 trillion and $1.9 trillion over a decade, according to estimates by the Urban-Brookings Tax Policy Center and the Tax Foundation, respectively.

That money is needed if GOP lawmakers are to accomplish any meaningful tax reform, a staff advisor to a ranking GOP member of the House told Bloomberg BNA on the condition of anonymity because he isn’t authorized to speak amid ongoing tax-reform negotiations.

Health Bill

The only alternative source might come from repeal of the Affordable Care Act, the staff advisor said last week. A health care bill designed to replace the Affordable Care Act, sponsored by Sen. Lindsey Graham (R-S.C.) and Sen. Bill Cassidy (R-La.), may go to the Senate for a vote this week.

House Republicans have already said they are no longer looking at moving to a territorial tax system, using border-adjusted taxes, which had been a leading revenue-raising idea promoted by House Speaker Paul Ryan (R-Wis.). Border adjustments, in essence, would tax imports and exempt exports from tax.

Deduction Analysis

Americans Against Double Taxation said in a Sept. 25 email that an analysis from the Government Finance Officers Association found that middle income taxpayers receive the majority of the benefits from the state and local tax deduction.

Of the 44 million Americans in all 50 states who claimed SALT in 2015, almost 86 percent had an adjusted gross income under $200,000, according to the analysis. More than 50 percent of the total dollar value of the deduction goes to taxpayers making less than $200,000 a year, the groups said.

On its website, the Government Finance Officers Association says it represents public finance officials throughout the U.S. and Canada, and it counts more than 19,000 federal, state/provincial, and local finance officials as its members.

To contact the reporters on this story: Che Odom in Washington at codom@bna.com and Allyson Versprille in Washington at aversprille@bna.com

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

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