High-Tax States Balk at Republican Deduction Proposal

By Mike Vilensky Features Dow Jones Newswires

Lawmakers from New York and other high-tax states are resisting efforts to roll back a policy that helps residents save on their federal taxes.

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Republicans have proposed eliminating or limiting the deductibility of state and local taxes as part of a new tax legislation. New York Gov. Andrew Cuomo, a Democrat, has seized on the issue, touring the state and joining with local and federal lawmakers who want to preserve the lucrative tax break.

The deduction allows individuals to subtract their home-state levies from their federal taxable income. In high-tax states such as New York, that can allow taxpayers to save big.

"This is probably one of the most destructive policies to the state of New York I've heard proposed in 30 years," Mr. Cuomo said Monday at a news conference with U.S. Sen. Chuck Schumer, a fellow New York Democrat.

The status of White House and congressional efforts to eliminate the deduction for some or all taxpayers isn't clear. A tax policy the White House outlined earlier this year proposed repealing the deduction.

House Republicans from New York, New Jersey and other high-tax states have been resisting GOP leaders' proposals to repeal the deduction and use the money to lower tax rates.

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House leaders need at least some of those members' votes to get the bill through and they have been negotiating with New York and New Jersey lawmakers. So far, they haven't announced a deal, though they have been considering proposals to allow property tax deductions or to set an income limit for the tax break.

On Monday, a White House spokesperson said: "The President has made it clear that his two non-negotiables are a middle-class tax cut and getting the corporate rate down to 20% or lower."

The spokesperson also said that only about 30% of U.S. taxpayers claim deductions, and pointed to a report from the Congressional Budget Office that said the state and local tax deduction "provides a much larger benefit relative to income for higher-income households than for lower-income households."

The issue has put some New York Republicans in a difficult position, torn between a policy their party generally supports and concerns about how it could impact them in their districts.

Rep. Peter King, a Republican representing Long Island, has been at the fore for pushing back on the policy within his party. In an interview, Mr. King described a recent meeting of House Republicans where he and other high-tax state representatives expressed concerns about repealing the deduction.

"Politically and economically, it would be devastating," Mr. King said, describing his suburban district as a swing region where voters backed Mr. Trump last year after previously voting for President Barack Obama, a Democrat. "The deduction is essential for these people to get by."

For Mr. Cuomo, the issue is familiar. In the 1980s, Republican President Ronald Reagan sought to eliminate the deduction, and New York Gov. Mario Cuomo, Mr. Cuomo's late father, led a successful effort against the repeal.

"The deductibility fight gave Cuomo a clean issue to champion to counter his weakness with Reagan Democrats," said Howard Glaser, an aide to the late Mr. Cuomo at the time. "It is rare to find one issue that does so much political work with relatively little controversy. He rode it to great effect."

--Richard Rubin contributed to this article.

(END) Dow Jones Newswires

October 23, 2017 19:23 ET (23:23 GMT)