Capitol Alert

Californians have tax blues as filing deadline approaches

Californians are none too happy as they mail their 2018 tax returns off to Washington, D.C.

A new poll from the Public Policy Institute of California finds that 59 percent of registered voters in the state disapprove of the tax law passed by a Republican Congress and signed by President Donald Trump in late 2017. Just under a third — 31 percent — of registered voters approve.

Taxpayers are in the process of filing their first federal returns under the new tax regime, which altered a bevy of popular tax deductions, including capping the state and local tax deduction at $10,000. The filing deadline is April 15.

Not surprisingly, Democrats in California are particularly critical of the tax law: 81 percent told PPIC they disapprove of it. A majority of independents — 57 percent — also disapprove, as do 21 percent of Republicans.

Majorities of adults in every age group, ethnicity, income level and region of the state disapprove of the law, as well.

That could prove problematic for Republicans in the state, as they try to make up ground after a devastating 2018 election cycle. All seven of the California Republicans in Congress voted for the 2017 tax law, as did four of their colleagues who lost their seats last November.

Former Reps. Dana Rohrabacher and Darrell Issa were the only two GOP members to vote against the law. Rohrabacher lost his race, anyway, and Issa retired.

Republicans in Washington continue to defend the 2017 law, crediting it with boosting the economy and driving an increase in wages.

“Thanks to tax reform and pro-growth policies, vulnerable Americans left behind during the Obama Administration are finding jobs with growing paychecks, experiencing less poverty, and expressing new optimism about their future,” Republican Rep. Kevin Brady of Texas said at a House Ways and Means Committee hearing on the law’s effects.

Democrats, however, complain the law’s benefits “are heavily tilted towards the wealthy,” as UCLA Law Professor Jason Oh testified at the same hearing on Wednesday. And as Oh highlighted, “the distribution of tax cuts will become even more unequal” when the individual income tax changes (including the cap on the state and local tax deduction) sunset in 2025.

“By 2027, the Tax Policy Center predicts that the top 1% of U.S. households will receive 83% of the benefits,” he said in his prepared remarks

The law has been particularly unpopular in Democratic-leaning states where the cost of living is high, including California, New York and New Jersey. One reason is that residents of those states are disproportionately affected by Republicans’ decision to cap taxpayers’ ability to subtract state and local income, sales and property taxes from their federal tax payment.

According to a report from the 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 will 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. Per the tax board estimates, 751,000 California households with incomes under $250,000 will probably owe a combined $1.1 billion. Given the high cost of living in the state, $250,000 does not feel like nearly as much money as it does in other parts of the country.

According to the PPIC poll, just over a third — 36 percent — of registered California voters believe the changes to federal tax law will have a mostly negative effect on them on their family, while 16 percent say it will have a mostly positive effect. A plurality, 42 percent, tell PPIC it will not have much of an effect one way or another.

For all the angst over federal tax changes, Californians aren’t particularly fond of the way state and local taxes are levied, either. A majority, 54 percent, of registered voters tell PPIC their state and local tax system is “not too fair” or “not at all fair.” And 63 percent say they pay either “much more” or “somewhat more” to state and local governments than they should.

That’s likely to reinforce fears among county governments that the cap on the state and local deduction will drive a push to lower local taxes — and cut their budgets. As National Association of Counties Associate Legislative Director Jack Peterson told McClatchy last December, “It puts a pressure on our members and certainly down the road financial pressure.”

Emily Cadei works out of the McClatchy Washington bureau, where she covers national politics and writes the Impact2020 newsletter. 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.