National Politics

Does tax bill help or hurt Californians? Republicans hearing it from both sides

Majority Leader Kevin McCarthy, R-Calif., joined by Speaker of the House Paul Ryan, R-Wis., touts the GOP tax reform plan on Capitol Hill in Washington, Tuesday, Nov. 7, 2017. His fellow California Republicans are under intense pressure from outside groups ahead of this week’s tax vote.
Majority Leader Kevin McCarthy, R-Calif., joined by Speaker of the House Paul Ryan, R-Wis., touts the GOP tax reform plan on Capitol Hill in Washington, Tuesday, Nov. 7, 2017. His fellow California Republicans are under intense pressure from outside groups ahead of this week’s tax vote. AP

Millions of California voters opened their newspapers Tuesday morning to a scathing critique of the Republican tax bill currently under consideration in Washington.

“Tax reform shouldn’t hurt Californians, but this proposal does, in a big way,” the California Association of Realtors warns in a full-page ad running in the Nov. 14 edition of the Los Angeles Times, Orange County Register, Bakersfield Californian, San Diego Union-Tribune, Sacramento Bee, Modesto Bee and Fresno Bee, as well as as Politico and the DC edition of the Wall Street Journal.

The ad, an open letter to President Trump and California’s congressional delegation, is just the latest in a flurry of campaigning on the GOP’s tax overhaul that has the state’s 14 Republicans on the hot seat – particularly a handful of vulnerable members from the Southern California suburbs. Along with their GOP counterparts from a few other high-cost, high-tax states, California Republicans face a choice of voting for legislation that would erase tax deductions prized by many of their constituents or going against their leaders and sinking the party’s best chance for a legislative victory ahead of the 2018 elections. Unlike Republicans from New York and New Jersey, the GOP delegation from California has not come out against the House tax reform proposal, en masse, despite its political downside back home.

“What is it (New York Republicans) realize that hasn’t sunk in with Republicans across the country, especially in California?” House Democratic Nancy Pelosi wondered aloud at a press conference Monday afternoon.

California Republicans’ muted response to the tax plan has made them a focal point for national Democrats. In the GOP-held districts reaching across Los Angeles, Orange and San Diego counties, Democrats see striking similarities to the suburban areas of northern Virginia and New Jersey that delivered them sweeping victories in last week’s election. Senate Minority Leader Chuck Schumer called the Republican tax proposal a “lose-lose” for Republicans from those parts of the country, and implicitly, a win-win for his party. “If they fail to pass it, they lose with their donors and the hard right,” the New York Democrat said at a press conference Monday afternoon. “If they succeed, the political fallout will be catastrophic for them.”

At issue for Californians are the fate of itemized tax write-offs such as the state and local tax deduction and the mortgage interest deduction. The House proposal would drop the cap on the mortgage interest deduction to the first $500,000, and would allow taxpayers to deduct up to $10,000 of their local property taxes but eliminate the deduction for state and local income tax. The Senate bill, released late last week, would ax all state and local tax deductions but keep the mortgage interest deduction capped at $1 million.

Because of the state’s high taxes and high home values, those deductions are worth more in California than almost anywhere else. In 2015, federal data shows that more than 6 million people in the Golden State claimed the state and local tax deduction, roughly a third of California taxpayers. And it was worth $112.5 billion in tax savings, higher than any other state.

The percentage of people claiming state and local tax deductions is even higher in a number of GOP districts. Reps. Steve Knight, Ed Royce, Mimi Walters, Dana Rohrabacher and Darrell Issa all represent areas of Southern California where 40 percent or more of taxpayers used the deduction. And the median home price was above $600,000 in Los Angeles, San Diego and Orange Counties – their home counties – according to the latest data compiled by the California Association of Realtors. All five of those lawmakers face energized Democratic opposition next election. Only Issa has come out firmly against the House bill, which is expected to be up for a vote by the end of the week.

Taxing dilemma

California’s 14 Republican members of the House must decide whether to go along with party leaders and vote for a tax bill that eliminates the ability of their constituents to deduct state and local taxes on federal returns.
GOP-led congressional districts map 

National Democrats are prepared to hammer any of those members who help pass the legislation. In fact, they haven’t even waited for the actual vote. The Democratic Congressional Campaign Committee is running digital ads on the tax issue against California’s six most vulnerable members. And Fight Back California, a Democrat-back Super PAC, launched digital ads last week targeting the seven California Republicans representing districts Democrat Hillary Clinton won last November for putting homeowner deductions at risk. Another PAC, Red to Blue CA, is similarly attacking the same seven Republicans – the five Southern California lawmakers plus Reps. Jeff Denham of Turlock and David Valadao of Hanford – warning them not to support “tax cuts for billionaires.”

Trade associations representing Realtors and home builders are also applying stiff pressure. In addition to its print ads, the California Realtors Association has been running digital ads demanding Congress “save homeownership.” And the National Association of Home Builders is flying in over 100 members this week to meet with members about its concerns about the tax plan, CEO Jerry Howard told McClatchy.

Republicans, for their part, are lobbying their California colleagues heavily to support the tax bill. McCarthy emphasized in a press statement to McClatchy that “each member of the California Republican delegation has actively engaged to make it as strong as possible for Californians.” As a result, the House bill “repeals the Alternative Minimum Tax which has a disproportionate effect on taxpayers in our state. It lowers taxes on small businesses to the lowest level since World War II, and repeals the estate tax that often hurts family businesses and family farms.”

And at least one outside group is seeking to bolster – and in a few cases, flip – a number of wavering House Republicans in the Golden State and elsewhere. American Action Network, a nonprofit advocacy group affiliated with House Republican leaders, is running $1.5 million worth of television ads ahead of the vote in 23 districts, including those represented by Denham, Valadao, Knight, Walters and Issa.

The ad running in Issa’s district urges viewers to thank the San Diego-area congressman for “fighting to create jobs – and cut taxes for California families.” There’s just one problem – as of now, Issa isn’t planning to vote for the Republican bill.

“I cannot endorse changes that may make the tremendous burden felt by California taxpayers even worse,” he said a week ago. “Tax reform should lower taxes for all taxpayers – regardless of where they live.”

Emily Cadei: 202-383-6153, @emilycadei

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