Members of Southern California House across the political spectrum have found one problem to be resolved: lifting a Trump-era tax deduction cap that harms many residents in their districts.
The efforts, say some observers, show that even in times of culture wars and ideological divisions, the politics of the kitchen table still play a role.
“It shows the saying, ‘All politics is local,'” said Kirk Stark, professor of tax law at UCLA.
“It almost doesn’t matter which party you are from on this matter,” added Stark. “If you are an agent for those facing high state and local tax burdens, it stands to reason that you would support the removal of restrictions on those taxes.”
What is not yet clear is whether this spirit of bipartisanism will extend beyond Southern California. Across the country, the idea of lifting the Trump-era cap on state and local tax deductions poses hurdles for members of both parties.
Prior to the 2017 tax plan advocated by House Republicans and President Donald Trump, Americans could deduct any amount they paid in state and local taxes, also known as SALT, from their federal income. The 2017 law limited these deductions to $ 10,000, even for married couples filing together.
While most Americans saw a slight tax cut under Trump’s plan, an estimated 11 million Americans who live in places where home values and state and local taxes are high – including much of southern California – have seen their taxes rise since then no longer able to deduct their full property tax payments from their federal tax bills.
Much of the impact was felt by households making more than $ 1 million a year. However, the California Franchise Tax Board estimates that 751,000 California households earning less than $ 250,000 have had to pay an additional $ 1.1 billion annually since the law went into effect in 2018, an average of about $ 1,460. Dollars per family per year.
This in turn triggered a kind of political realignment. In the last session, local House Democrats pushed for tax cuts by backing standalone bills and COVID-19 relief packages that would have killed or severely limited the SALT withholding limit. But none of those efforts to cut taxes got through the GOP-controlled Senate.
But many Republicans who won house seats in Southern California made partial promises to lift the SALT cap. And now they’re making laws and encouraging talks to potentially reverse the $ 10,000 limit on President Joe Biden’s proposed infrastructure bill of more than $ 2 trillion.
“In our state, a middle-class couple can quickly hit the ceiling if they work and own a home,” said Rep. Mike Garcia, R-Santa Clarita, whose first law to be withdrawn after taking office on Jan. 7, said SALT -Deduction limit. “Removing the cap would put thousands of dollars of people’s hard-earned money back in their pockets.”
That makes sense on site. Nationally, it raises some political dilemmas.
For Republicans, an attempt to lift the SALT cap is an attempt to wind down part of Trump’s tax plan, which is considered his government’s signature legislation. The tax deduction limit is also particularly strict for blue states like California and New York, which gives GOP representatives in red states little political motivation to support the change.
This disproportionate impact on democratic states is a key argument put forward by Governor Gavin Newsom and six other high-tax country governors in an April 2 letter calling on Biden to lift the SALT cap.
However, the removal of the cap on SALT deductions will primarily benefit wealthier Americans, which is difficult for Democrats to support at a time when many leftists are already supporting new wealth taxation efforts. The change would also cost the federal government an estimated $ 620 billion in tax revenue if Democrats back up plans to make large investments on infrastructure and other public programs.
For this reason, some progressive Democrats like New York MP Alexandria Ocasio-Cortez have spoken out against the unwinding of Trump’s policy.
Opponents on the right have argued that unlimited SALT deductions encourage state and local governments to levy taxes on the rich, knowing residents can write them off at the federal level. In this view, all federal taxpayers subsidize places with higher state and local taxes when there is no limit on SALT deductions.
The debate is complicated as follows: The SALT cap will expire in 2025.
That deadline could make it easier to relax, Stark said, as lifting the SALT cap would only expedite a policy that should never be permanent. But it could also make it harder for proponents to convince politicians who are on the fence that it is worth finding a source of income that won’t be around for long.
Republicans who support the repeal play along with how the federal tax law change only exacerbates the problems caused by California tax rates.
“California’s high taxes are damaging our state and our taxpayers. It’s not right to punish them again through federal tax laws, ”said Michelle Steel, R-Seal Beach, one of two officials who support Garcia’s bill to reverse the cap.
While California ranks high for sales and income tax rates, California’s effective property tax rate is 0.76%. This makes California the 16th lowest property tax state in the country. But California is also number 2 in the country for median home price, which can mean expensive property tax bills that are not fully deductible under Trump’s plan.
Rep. Young Kim, R-La Habra, was an original co-founder of a bill introduced in January to remove the withdrawal limit. It is supported by Democrats and Republicans in Los Angeles and Orange counties.
With the support of this bill and the previously proposed lifting of the SALT cap, Democrats play a role in how these deductions encourage local governments to invest in local priorities such as schools, roads, public safety and parks.
“The coronavirus pandemic is a particularly powerful reminder of the important work our states and local governments are doing as they lead public health testing and vaccine efforts,” said Katie Porter, D-Irvine, on Monday. “By restoring state and local tax withholding, taxpayers and communities can invest in their priorities and improve the state-level playing field for federal taxation.”
Porter, who has been struggling to lift the cap since her first election in 2018, estimates nearly half of taxpayers in her 45th district use the SALT deduction, with an average deduction of more than $ 22,000 per household.
Given the division on this issue at the national level, Stark expects that Democrats and Republicans could negotiate a compromise to either increase the allowable SALT deduction from $ 10,000 to, say, $ 20,000, or to remove the cap for all but the highest earners.
Both of the House’s bills calling for the SALT ceiling to be lifted were submitted to the Committee on Means and Ways for consideration. And Biden is meeting with lawmakers this week to work out plans for an infrastructure bill that some officials insist the SALT withholding limit must be lifted.