House and Senate tax bills treat disaster victims unequally

If the House Republican tax bill became law, victims of hurricanes in Texas and Florida who've yet to account for all their losses could deduct them on their 2018 taxes. Not so for victims of the California wildfires.

If the Senate version prevailed, victims of all federally declared disasters — a category that cover victims of both hurricanes and the wildfires — could deduct their losses. But people who lost homes in smaller-scale disasters couldn't.

Such disparities, seemingly arbitrary, show how political decisions have helped shape the tax legislation being crafted by Republicans, who insist they're trying to simplify the tax code, reduce rates and treat everyone fairly.

"I don't know that treating disasters differently makes sense as economic policy, but it's understandable as part of the political process," said Michael Simkovic, a tax professor at the University of Southern California law school. "That's how things work."

No one is sure which provisions of the House and Senate bills will end up in the final reconciled version that Republicans are working on and hope to finalize as early as this week. But whatever changes survive the reconciliation process could have far-reaching consequences for a vast range of households, including victims of natural disasters.

The House bill was written by Rep. Kevin Brady, the chairman of the tax-writing Ways and Means committee. His district adjoins Houston, which was thrashed by Hurricane Harvey in September. Brady's provision would end the personal loss deduction that has been used by taxpayers who suffer severe losses from fires, floods or crimes.

Yet the House bill would create an exception allowing victims of Hurricanes Harvey, Irma and Maria to use that deduction in the future if they haven't yet totaled their losses from the storms by the time they file their 2017 taxes.

"If they call out one kind of devastation over another, that stinks," said Larry Keyser, whose home was one of nearly 9,000 buildings destroyed in fires in Northern California in October as the tax bill began to move through the House of Representatives.

"The Senate side, that stinks too," added Keyser, a retired engineer who is struggling to total all the losses his family suffered. He doubts he will have determined his total financial loss by tax time.

Despite Brady's provision, Republicans have said they are trying to extend the deduction to California wildfire victims just as they did to hurricane victims. All of California's 53 congressional representatives — including House Majority Leader Kevin McCarthy — have introduced a bill that would extend into next year the personal loss deduction for victims of the state's fires.

Lauren Aronson, a spokeswoman for the Ways and Means committee, did not explain why the House bill provided tax advantages for hurricane victims but not for fire victims. In a statement, she said of the House and Senate measures:

"Chairman Brady looks forward to working together in conference to reconcile these similar proposals. At the same time, the chairman continues to work with members who have introduced legislation that will provide tax relief to families affected by the recent wildfires in California."

Democrats have assailed Republicans for omitting California's fire victims from the House bill's tax advantages for hurricane victims. Their anger is compounded by the fact that both versions of the Republicans tax legislation would eliminate the deductibility of state and local income taxes.

That change would especially disadvantage residents of California and other high-tax states that vote predominantly Democratic. Eleven of California's 14 Republican members of the House voted for the tax bill, helping supply the margin it needed to pass that chamber.

Rep. Darrell Issa, whose San Diego district was hit by last week's fires, is one of the three California Republican representatives who voted against the bill. On Tuesday, he urged congressional leaders to include an extension for California wildfire victims in the final bill.

"As devastating wildfires continue to ravage our state, it would be unthinkable to do away with important and much-needed relief for constituents who've lost their homes, property and livelihoods," Issa wrote.

Even if the House provision is adjusted to match the Senate's, allowing victims of federally declared disasters — but not others — to deduct losses, it would still be morally objectionable, Rep. Brad Sherman, a California Democrat, said in an interview.

"Why would we treat two people who both lost homes of equal value differently, because one lost their home on a day when 15 other people lost homes and another when 200 lost their home?" he asked.

Sherman also warned that using the tax code to favor victims of federally declared disasters over other victims could open the door for Congress or the White House to punish particular states that favor the opposing political party.

"That just shows how political this all is," he said.

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AP staffers Jeff Chiu in San Francisco and Ellen Knickmeyer in Sonoma, California, contributed to this report.

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This story has been corrected to reflect that nearly 9000 buildings were destroyed in the Northern California fires.