California Republicans Push to Preserve Income-Tax Deduction

Though t he House and Senate have voted to repeal the deduction for state income taxes in Republican tax overhaul plans, it isn't dead yet.

California Republicans are pushing for an income-tax deduction in the final tax bill being worked out by lawmakers in a House-Senate conference committee on tax legislation.

"There's a lot of things that Californians are working on and why we said we'd move the process forward, looking to be able to make those fixes," House Majority Leader Kevin McCarthy (R., Calif.) told reporters on Tuesday.

In November, 11 of the 14 California Republicans in the House voted for the tax bill; New Jersey and New York GOP members, with similarly high state taxes, were much more willing to vote no. The House will need to vote again, and Republicans need 217 votes to guarantee passage if no Democrats vote for the bill.

The House and Senate bills both repealed the deductions for state and local income and sales taxes, using that money to lower individual tax rates. They also preserved a $10,000 itemized deduction for property taxes.

That property-tax break was especially important to New York and Illinois Republicans who voted for the House bill. A $10,000 itemized deduction wouldn't be used by everyone in those states. Taxpayers would likely claim it only if it helped their total itemized deductions, including mortgage interest and charitable contributions, get over the new higher standard deduction of about $12,000 for individuals and about $24,000 for married couples.

It is less useful in California, where property taxes are limited and income taxes are more important.

California Republicans would like the $10,000 cap to be higher. And they want at a minimum to let taxpayers deduct $10,000 against either property or income taxes, said Rep. Mimi Walters (R., Calif.).

"I am strongly in favor of making sure we have some sort of fix because I feel it's very important to give that flexibility," said Ms. Walters, who voted for the House bill. She said she didn't know how much such a fix would cost and didn't know whether she would vote for the final version of a tax package without something new.

Rep. Kevin Brady (R., Texas), who will lead the conference committee, said there were four or five options lawmakers were considering to address the concerns of lawmakers from high-tax states.

That includes Ms. Walters's suggestion of letting the $10,000 be used for income or property taxes. Mr. Brady said he is also considering how to adjust the tax bracket structure.

And he is considering whether the family and child tax credits in the House bill should be changed. The House bill starts phasing out those tax breaks at $115,000 for individuals and $230,000 for married couples. That is above current law, but below the Senate's $500,000 threshold.

"All of those options and a few more are being discussed," Mr. Brady said.

Republicans are also debating limits on the mortgage-interest deduction. The House voted to limit the mortgage-interest deduction to loans totaling up to $500,000, down from $1 million in current law, which is also the level preserved by the Senate. Californians in expensive real-estate markets are pushing for a higher mortgage-interest deduction.

"I think it should be somewhere in between, that you can get it between or higher," Mr. McCarthy said.

All of those changes would reduce revenue and Republicans would need to find money elsewhere to make up the difference.

Mr. McCarthy doesn't sit on the House committee that will iron out differences between the House and Senate bills, but as a leader who played a key role in assembling the Republican majority that passed the legislation to begin with, he will be pivotal behind the scenes in the days ahead.

(END) Dow Jones Newswires

December 05, 2017 19:06 ET (00:06 GMT)