GOP Considers State Tax Break Bargain on Property Levies

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Republican tax writers are considering a compromise measure that would allow individuals to keep deducting the cost of the property taxes they pay while eliminating a larger tax break for their other state and local taxes, according to a GOP member of Congress.

The measure is aimed at appeasing roughly two dozen Republican House members from high-tax areas who have raised concern that eliminating the state and local tax break entirely would hurt taxpayers in their districts. The Congress member who described the proposal asked not to be named because the discussions are private.

Current law allows individuals to deduct their state and local tax payments, and eliminating that break in full would raise an estimated $1.3 trillion over 10 years -- an amount Republicans need to offset the deep tax-rate cuts they’ve proposed. Retaining the ability to deduct property taxes would cost about $300 billion of that revenue. Individuals would lose the deduction on state and local income taxes.

President Donald Trump’s administration, which proposed eliminating the so-called SALT deduction in April, has indicated willingness to compromise on the issue.

The GOP tax framework that was released last month would cut the corporate income tax rate to 20 percent from 35 percent and consolidate the existing seven individual tax rates to three or four -- leaving it up to congressional committees to decide. They also propose to cut the top rate on income from partnerships, limited liability companies and other “pass-through” businesses to 25 percent from 39.6 percent.

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Many Republicans favor eliminating the state and local tax break entirely -- arguing that it’s inappropriate for the federal government to subsidize tax increases by state and local officials. The tax break is used most frequently in high-tax states that tend to vote for Democrats, including New York and California -- but dozens of Republican House members in such states have sought to retain the break in some form.

House Republican lawmakers have proposed alternatives to full repeal of the deduction including setting an income cap that would preserve the break for people below a certain threshold. Representative Tom MacArthur of New Jersey, part of the group pushing for some preservation of SALT, has argued that property taxes must remain deductible.

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