All 14 House Republicans from California voted for their party’s budget Thursday, helping to narrowly advance Republican efforts to rewrite the tax code for the first time in more than 30 years.
The plan also jeopardizes a tax write-off that disproportionately benefits Californians and others in high-tax, high-income states, setting off alarms from Golden State Democrats.
Republican leaders have yet to introduce a full draft of their tax legislation, but the “framework” they released in September would eliminate most itemized deductions to pay for the deep income and corporate tax cuts it proposes. The biggest write-off on the chopping block is the state and local tax deduction. In 2015, federal data shows that more than 6 million California taxpayers claimed the deduction, worth $112.5 billion. That’s more than any other state, according to the Tax Foundation, a right-of-center tax policy research organization. California is one of just six states, along with New York, New Jersey, Illinois, Texas and Pennsylvania, that together claimed more than half of all state and local tax deduction dollars in 2014, the foundation says.
The threat to the state and local tax deduction, or SALT, as it’s often known, prompted a handful of New York and New Jersey Republicans to vote against the budget resolution Thursday. With their defections, along with several “no” votes from hardline conservatives, the GOP budget just squeaked by by a four-vote margin – 216 to 212. Just a few California Republicans could have swung the result the other way. The measure approved Thursday advances the tax overhaul that could end the popular deduction.
The state’s GOP delegation has been far more circumspect about the tax overhaul than their counterparts in other heavily affected states. Not only have they not been part of the public pushback on ending SALT, they seem to be actively avoiding discussing the issue, altogether. McClatchy has reached out to more than half of the delegation in recent days to discuss their position on tax reform and whether they are involved in the ongoing negotiations over SALT in the House. Only Bakersfield-area Rep. Kevin McCarthy, the House majority leader, responded. His spokeswoman, Erin Perrine, confirmed he’s involved in the discussions as a member of the House GOP leadership. And Perrine provided a statement from McClatchy in support of eliminating the deduction.
“California is one of the most mismanaged, highest-tax states in the nation,” McCarthy said. “And they use an argument inside that capitol, ‘Let’s raise taxes, as you can write it off on your federal income tax.’ Well, that’s not fair for all of America. [Our plan] would actually encourage states to manage their states better.”
In an interview with McClatchy Wednesday evening, House Minority Leader Nancy Pelosi said she considered any Republicans voting for the budget “accomplices” in the effort to eliminate the state and local deduction. “If they’re voting for the budget, they’re voting for (ending SALT),” she said.
California Gov. Jerry Brown also sent a letter to every House Republican from California on Wednesday, urging them to vote against any proposal that would eliminate the state and local deduction. “Can you tell me how much your neighbors and fellow citizens will have to pay because of this proposal? Budget analysts say it will cost them many thousands of dollars!” Brown wrote.
At her press conference after the budget vote on Thursday, Pelosi reiterated Democrats’ complaint that Republicans tax plan will harm the middle class, not help it, as President Trump and GOP leaders have promised. “What they are doing is looting them,” she said, emphasizing the number of people across the country who save money via the SALT deduction. As the state’s Democratic delegation noted in an Oct. 23 letter to the leaders of Congress’ tax-writing committees, roughly 83 percent of California households claiming the deduction in 2015 earned under $200,000. Given the high cost of living in much of the state, that qualifies as solidly middle- or upper-middle class, Pelosi and other Democrats argue.
Given the impact and the political potency of the issue, Republicans are working to hash out a compromise that could soften the blow for states like California, New York and New Jersey. Members from the two latter states continue to negotiate with Republican leaders as they prepare to release their tax legislation next week. House Ways and Means House Committee Chairman Kevin Brady announced Thursday they will have a draft of the bill on Nov. 1, then proceed to a committee vote on it the following week.
Democrats will no doubt continue to loudly criticize the bill and the speedy process Republicans are using to move it through the House. The question is when California’s Republicans will begin to speak up and take a position on the issue.