Capitol Alert

Issa to Jerry Brown: California the one with ‘horrible ideas’ on taxes

Facing mounting pressure from Democrats on tax reform, one of California’s most endangered Republicans in Congress has pushed back – hard.

Rep. Darrell Issa of Vista sent a sarcastic reply Friday to California Gov. Jerry Brown, after Brown wrote all 14 of the state’s Republican House members earlier this week. The governor’s Oct. 25 letter implored the delegation to vote against House Republicans budget, a key step towards the GOP’s ambitious effort to overhaul the federal tax code. Brown and other Democrats are worried about preserving the ability to deduct state and local taxes from federal income tax returns, which Republicans’ initial tax proposal, released last month, would eliminate. A full draft of the legislation is due on Nov. 1.

According to IRS data, more than 6 million California taxpayers claimed the deduction, worth $112.5 billion, in 2015. 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.

“Getting rid of an individual’s ability to deduct his or her California taxes (from federal tax) is a horrible idea,” Brown wrote. The letter had little practical impact – every California Republican voted for the budget measure Thursday morning, including Issa.

In his letter to Brown, the eight-term congressman castigated the governor for the state’s high taxes. “I recognize the role of the state and local tax deduction to reduce the tax burden on many Californians,” Issa wrote, “but let’s be clear: it has only become of such importance as a direct result of the tremendous weight that your misguided policies have put on California taxpayers.” In particular, Issa cited the state’s new gas tax law that Brown recently signed. “In terms of truly ‘horrible ideas’ on tax policy, I have to say, this one takes the cake.”

House Majority Leader Kevin McCarthy of Bakersfield has taken a similar stance, claiming the current tax system essentially forces other states to subsidize California, New York and other high-tax states. “California is one of the most mismanaged, highest-tax states in the nation,” McCarthy said in a statement emailed to McClatchy. “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.” McCarthy is one of just a couple Republicans from the state who publicly supports the current GOP proposal to get rid of the state and local tax deduction, or SALT, as it’s known.

Issa is not among them. In a statement e-mailed to McClatchy, the congressman said, “I do have concerns over SALT and obviously Governor Brown’s relentless tax increases make changes to that provision more difficult. That’s also why I’m eager to see the changes next week.” But he added, “we need tax reform in a big way. If we're going to move our country, we’re going to have to start with fixing our broken tax code so Americans keep more of what they earn.”

It’s a delicate balance for Issa, who just eked out a reelection victory in 2016, as it is for other six other California Republicans facing competitive potentially challenges next year. Taxes are a potent issue for voters, and the legislation will inevitably have winners and losers.

Issa’s GOP colleagues in the state appear to be taking a similar wait-and-see approach. Unlike their counterparts from New York and New Jersey, California’s delegation has mostly kept quiet on the SALT debate thus far. “I think these people are scared, I think they need enormous sums of money for their campaigns” so “they’re all falling in line” with Republican leadership, Brown said on a conference call with reporters Friday morning.

Behind the scenes, however, negotiations on SALT are continuing. Along with Republicans from New York and New Jersey, California Republicans are trying to hammer out a compromise that makes sure the new code would balance out for their taxpayers.

The state’s Democrats, however, say it’s already clear that Republicans’ tax overhaul will hurt the state. “I talked to Mr. McCarthy, he claimed that it will work out fine or something like that because of the other features of the bill,” Brown told reporters. “That’s not the way our finance department reads it.”

His counterpart in New York, Andrew Cuomo, pooh-poohed the idea that high-tax states are being subsidized by others. “New York and California are among the top donor states,” which means their residents pay more in federal taxes than the states get back in federal funds and programs, Cuomo said on the call. Then he added, “If they want to play fair at all, just send us back the money.”

Emily Cadei: 202-383-6153, @emilycadei

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