Capitol Alert

Trump’s offer to revisit popular California tax deduction hits GOP resistance

President Donald Trump’s off-hand offer to revisit a popular tax deduction that benefited millions of Californians met quick opposition from the Republican leader of the Senate Finance Committee on Thursday.

Iowa Sen. Chuck Grassley’s office said he had no interest in reopening the discussion on the state and local tax deduction, which Congress capped in the 2017 federal tax overhaul.

“The Senate Finance Committee won’t be revisiting the SALT deduction reforms made in the Tax Cuts and Jobs Act under Chairman (Chuck) Grassley’s leadership,” spokesman Michael Zona said in a statement.

Zona called the deduction “a federal subsidy for states to raise taxes on their residents without political consequence,” and called on states “to lower their taxes instead of insisting that taxpayers from lower-tax states subsidize their profligate spending.”

Congress members from high tax states, including California, New York and New Jersey, have been pushing for lawmakers to revisit the $10,000 cap on SALT, one of the most contentious elements of Republican-backed tax code rewrite.

On Wednesday, the president told a group of regional reporters at the White House that he was “open to thinking about that.”

“There are some people from New York who have been speaking to me about doing something about that, about changing things,” the president said. “I’d be open to talking about it.”

Until last year, taxpayers could deduct their state and local tax payments from their federal income taxes if they itemized their deductions.

According to California Franchise Tax Board, approximately 2.6 million taxpayers deducted more than the $10,000 limit in state and local taxes in 2015. Of that group, about 1 million were projected to owe more in taxes in 2018 — to the tune of $12 billion. About $9 billion of that will be paid by about 43,000 Californians who make $1 million or more.

But some middle-class taxpayers are likely to pay more, too. According to tax board estimates, 751,000 California households with incomes under $250,000 will probably owe a combined $1.1 billion. And given the high cost of living in the state, $250,000 does not feel like nearly as much money as it does in some other parts of the country.

That prompted a backlash from lawmakers in California and elsewhere. Leading the charge on legislation to renew the full SALT deduction is New Jersey Rep. Bill Pascrell, a senior Democrat on the powerful Ways and Means tax writing committee. He told McClatchy in December it was “a priority” for the committee under the new Democratic majority in the House.

On Wednesday evening, Pascrell told McClatchy that he is preparing to introduce a bipartisan bill “very shortly.”

Opposition from Grassley and other Senate Republicans makes the prospects for passage unlikely, at least in this Congress. As chairman of the Finance Committee, the Iowa Republican controls what tax-related legislation advances in the Senate.

There’s no guarantee, moreover, that Pascrell and other critics of the SALT cap can win over enough Democrats to pass legislation in the House. There’s a perception, which Trump highlighted Wednesday, that the change to the deduction only “affects wealthy people.” Democrats from parts of the country with low taxes may prefer to keep the cap on SALT and give tax cuts to other groups of Americans.

Defenders of the SALT deduction argue that it enables state and local governments to implement more progressive tax systems and fund more local services.

And even if they can’t get a bill through Congress, they want to lay the groundwork for a deal in the coming years.

They have some leverage: the $10,000 cap on the deduction, like most of the rest of the individual tax changes in last year’s law, expires in 2025.

Emily Cadei works out of the McClatchy Washington bureau, where she covers national politics and policy for McClatchy’s California readers. A native of Sacramento, she has spent more than a decade in D.C. reporting on U.S. elections, Congress and foreign affairs for publications including Newsweek, Congressional Quarterly and Roll Call.