House Republican leaders are making last-minute changes to their tax bill in an attempt to win over skeptical members within their own party, crafting a provision that would allow Americans to deduct their local property taxes from their federal taxable income.
House Ways and Means Committee Chairman Kevin Brady (R-Tex.) had planned for months to prohibit people from deducting any state or local taxes from their federal taxable income as part of a sweeping overhaul of tax rules, but huge pushback from Republicans in states such as New York and New Jersey precipitated the change.
Discussions are ongoing, and it remains unclear whether the change will placate the holdouts. Currently, taxpayers who itemize their deductions can write off their property taxes and also choose to deduct either their state and local income or sales taxes.
Brady told reporters Monday that the ability to deduct property taxes from federal income would be one of just three items that Americans could claim on a postcard-style filing system that the GOP is trying to market as a way to simplify the tax code.
“Right now on the postcard will be the mortgage deduction, the charitable [giving deduction] and the property tax deduction,” Brady said.
But a key lawmaker who has been negotiating a compromise on the state- and local-tax issue stopped short of saying the conflict had been resolved.
Rep. Tom Reed, a Ways and Means Republican from the high-tax state of New York, said lawmakers were “still hashing through” how the deduction would be preserved and that “it’s too fluid to say anything” about a resolution. He said the deduction might still be capped so high-income taxpayers can no longer claim it, for instance.
“I’m comfortable with whatever compromise gets us to taking care of 99 percent of the people I represent,” Reed said.
Brady and Reed spoke outside a closed-door meeting of Republican Ways and Means members in a conference room on the fifth floor of the Longworth House Office Building, where the tax writers have spent long hours in recent weeks honing their plan.
Brady is working to put the finishing touches on his draft of the tax overhaul, which he is slated to release Wednesday. He told reporters that “very, very few” issues remain in flux, but details have been kept under tight wraps.
Several lawmakers involved in the meeting declined to comment, and one reporter followed Brady as he headed to the bathroom, only to be turned back by the chairman. After he emerged, Brady spoke briefly with reporters.
The Ways and Means Republicans are expected to convene again Tuesday to put the finishing touches on the bill before its release. The panel will then meet next week to refine the bill in a public markup session, and the White House is hopeful that the House can pass a full version of the bill by Thanksgiving.
The Senate is working on its own version of the tax changes, and Republicans hope they can pass matching tax-cut bills through the House and Senate by the end of the year. This will be a difficult task given their slim majority in the Senate and internal divisions that have delayed the effort so far.
Republicans are trying to blunt criticism that their tax bill would hurt homeowners and the real estate industry. The National Association of Home Builders announced over the weekend that it will work to kill the House bill because it thinks that reducing the number of Americans who deduct their mortgage interest and their property taxes would remove incentives for homeownership.
Under the GOP plan, the standard deduction would double to $24,000 for a married couple filing jointly — meaning that it could be advantageous for a family to claim those individual deductions only if their combined yearly mortgage interest, property taxes and charitable contributions exceed that amount.
It couldn’t be learned whether the new property tax change would lessen the opposition from the NAHB, a powerful lobbying group that is advocating for a new tax credit that could be claimed by all taxpayers, regardless of whether they itemize their deductions.
Democrats warned Monday that any change would still harm middle-class homeowners in high cost-of-living areas by eliminating the deduction for state and local income taxes.
“No matter how they construct this compromise, Republicans are still socking it to the middle class and the upper-middle class, but this time picking winners and losers,” Senate Minority Leader Charles E. Schumer (D-N.Y.) said Monday.
Allowing Americans to deduct their property taxes from their taxable income could make the broader tax bill more expensive unless other changes are made to offset the adjustment. The bill is expected to add $1.5 trillion to the deficit over 10 years, and Republicans are trying to ensure that changes they add don’t make it more costly.
The broader GOP tax plan would slash corporate rates, simplify the taxes paid by individuals and families, and create new incentives for companies to bring foreign earnings back to the United States. But many details of how these changes would work have been kept secret, fueling concern about the potential impact on companies, families and a wide range of taxpayers.
“Probably the biggest challenge is going to be educating people on how things work,” said Rep. Devin Nunes (R-Calif.), who has written key parts of the GOP plan’s for business taxes. “This is the biggest change in the tax code ever.”
Republicans want to lower the corporate tax rate from 35 percent to 20 percent. Brady on Monday denied a report that the reduction would be phased in over a period of years, but he also wouldn’t confirm that the corporate rate would be 20 percent in the first year the law goes into effect.
“To be determined,” he said.