House Ways and Means Committee Chairman Kevin Brady (R-Texas) may have thought he could release his committee’s tax reform bill without any outrage from lawmakers whose states would be most impacted by the loss of state and local tax deductions. But after he announced the legislative text would not include a state income tax deduction, two Republican lawmakers from New York are already on the warpath of potentially torpedoing their party’s mission of reforming the nation’s tax code.
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In an interview with Rep. Dan Donovan (R-NY) on Tuesday, a lawmaker who represents constituents in the New York City borough of State Island, told FOX Business in an exclusive interview that he would be outraged if Brady goes through with his decision and he could not support a final bill that would eliminate the tax break.
“I believe and trust Chairman Brady, but this would be outrageous for tax cuts to be paid for the rest of Americans on the backs of New Yorkers. I can’t see myself supporting a House tax bill that compels New Yorkers to pay for the tax cuts elsewhere in the nation,” Donovan said.
Donovan appeared to feel betrayed by House leadership after numerous meetings since the nine-page tax reform plan was released in September, and following a phone conference Monday with senior White House officials, including National Economic Council Director Gary Cohn and Treasury Secretary Steven Mnuchin.
When asked what he thought about Brady declaring the income tax deduction will not be part of the bill, Donovan said he hoped he and his New York colleagues were not deceived, telling FOX Business, “I would be outraged if our input was all for naught. We were in constant communication. He (Brady) said there was room for debate.”
Another congressman from New York, Rep. Peter King (R-NY), a close ally of Donovan’s, was even more blunt about Brady’s decision to eradicate part of the deduction, also known as SALT, and made it clear he could not vote “yes” if the bill that will be released Wednesday takes away a part of the tax break.
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“I’m disappointed,” King told FOX Business. He later added, “I’m not happy.” When asked if he would vote “no” on a bill that takes away the income tax deduction, he said, “Yes.”
SALT affects about 30% of all taxpayers, mainly in states such as New York, New Jersey, California, Connecticut, Virginia and Pennsylvania that impose significant state income and property taxes. The GOP Congress is dominated by lawmakers from southern and western states that don’t impose such levies. They have argued for ditching the SALT deduction from the tax code on the grounds that it unfairly benefits taxpayers from just a handful of states and deprives the federal government of trillions in revenue.
Brady enraged the two lawmakers when he told the Hugh Hewitt Show that he was not willing to give relief to those who make use of the SALT income tax deduction. When asked by Hewitt if his plan would include a reprieve to those taking advantage of the income tax break, Brady said, “The answer is no, and here’s why, because we have income taxes, reduced them across the board, and added the property tax [deduction].”
On Sunday, Brady announced what appeared to be a compromise with lawmakers when he said the tax plan would include a property tax deduction.
“At the urging of lawmakers, we are restoring an itemized property tax deduction to help taxpayers with local tax burdens,” Brady said in a statement.
Even after the House Ways and Means Chair seemed to admit he was unwilling to include most of the SALT deduction in the tax bill, he seemed to go back on his earlier comments when he said at a press gaggle later in the day that the tax bill being rolled out on Wednesday will not be the final tax reform bill, as it will go through the traditional markup process before it’s called for a vote.
The Trump administration called for the elimination of the SALT deduction that would produce close to $1.3 trillion in revenues over 10 years and help pay for his plan to slash taxes for individuals and take the corporate tax rate down from its current level of 35% to 20%.
But lawmakers from these high-tax states argue that the federal government receives a disproportionate share of tax revenues from states like New York and California, where a large percentage of wealthy people reside, thus the tax break provides some degree of fairness in the government’s revenue collection efforts.
Making the matter even more contentious as the Republican-controlled Congress and the Trump administration move toward the politically vital tax reform bill: close to 60 Republican members come from states that benefit most from the SALT deduction and could vote against tax reform if the tax break isn’t preserved in some way.