A compromise proposal to keep the state and local tax deduction for property taxes but eliminate it for income or sales taxes is not a done deal, key lawmakers said Monday.  

“Well, it’s a large group and have varied opinions, but I know the response was very positive,” Ways and Means Chairman Kevin Brady said Monday when asked if the proposal resolved the concerns of members from high-tax states. “We’re clearly trying to help them.”

Brady, speaking to reporters during a break from a meeting with committee Republicans, said it has yet to be decided whether the property tax deduction may be capped or limited to taxpayers of a specific income level.

“We’re going to visit with SALT members when they get back into town [Tuesday] about the final design of that,” the Texas Republican said about the state and local tax deduction. “But the response we got from them was very positive. Big step in the right direction.”

CQ and Roll Call reporters contacted the offices of the 28 Republicans that represent the high-tax states of New York, New Jersey and California.  Eight of the 28 members responded to CQ and Roll Call reporters, and only Rep. Chris Collins’ statement read as definitive support.

“It goes to show you that leadership does listen to the concerns we as members point out,” Collins said. “Now, New York taxpayers are poised for a big victory when federal tax reform provides them with more money in their pockets and better economic opportunity.”

New York has the highest tax burden of any state, according to an April study by WalletHub, a financial analysis website, which compiled property taxes, individual income taxes and sales and excise taxes, viewed as a percentage of personal income in each state. New Jersey has the seventh-highest overall tax burden, but the second-highest property tax burden, the study found.

Rep. Tom Reed, R-N.Y., told reporters tax writers were still hashing out the details on keeping the property tax deduction.

“Right now it’s too fluid to say anything that could impact where we are,” he said. 

Industry concerns

Brady said the tax bill, which will be released Wednesday, will eliminate the portion of the SALT deduction that allows taxpayers to deduct either their income or sales taxes.

“Right now, on the postcard will be the mortgage deduction, the charitable and the property tax deduction,” he said, confirming those provisions will all remain itemized deductions.

Industry advocates for those deductions have raised concerns the GOP’s plan to double the standard deduction will reduce the incentive they’re designed to create.

“By sharply reducing the number of taxpayers who would itemize, what’s left is a tax bill that essentially eviscerates the mortgage interest deduction and strips the tax code of its most vital homeownership tax benefit,” Granger MacDonald, chairman of the National Association of Home Builders, said in a statement. “This tax blueprint will harm home values, act as a tax on existing home owners and force many younger, aspiring home buyers out of the market.”

MacDonald’s group had been advocating for a homeowner’s credit that would have combined the mortgage interest and property tax deductions into a single tax credit that taxpayers could use to reduce their tax bill, regardless of whether they itemize or claim the standard deduction.

Brady said that proposal could be incorporated later in the legislative process.

“I think the Speaker made it clear that he didn’t want to surprise members with a new home credit, versus what they’re already familiar with, the itemized deduction. But he made it very clear to the home builders and others, look, if you can educate lawmakers on why this is a better approach, he’s open to it.”

Reed said he will be comfortable with any proposal that takes care of 99 percent of his constituents, but he wasn’t sure yet whether eliminating the income portion of the SALT deduction might complicate that goal. “Gotta look at the numbers,” he said. 

Need more information

Some members, like Reps. Frank A. LoBiondo, R-N.J., and Lee Zeldin, R-N.Y., said they did not have enough information yet about the proposal to evaluate its impact.

“My position is that the SALT deduction should remain,” Zeldin said in a statement. “If there is a proposal to make major changes to the proposal to fully eliminate the SALT deduction then I will listen to it. I have not yet received a specific, concrete proposal though for what major changes they have in mind so it would be premature to start commenting on speculation.”

New Jersey Rep. Leonard Lance, who has been advocating for keeping the SALT deduction in full, called the property tax proposal “a step in the right direction” but said he will need to see legislative text before he can draw a final conclusion about its impact on his constituents.

“There is more work to be done on the SALT issue,” he said.

Rep. Dan Donovan, R-N.Y., called the proposal “a positive development,” saying it shows GOP leaders were listening to arguments made about the unfairness of double taxation. “I look forward to analyzing the tax relief proposal in its entirety this week,” he said. 

Lawmakers from California, meanwhile, have not been as vocal about the SALT deduction as their New York and New Jersey colleagues. While California’s property tax burden is low compared to other states, it has the seventh-highest income tax burden, according to the WalletHub analysis.

California Rep. Devin Nunes, a Ways and Means member, said he’s in favor of fully repealing the deduction but he seemed open to the property tax compromise. Others, like Rep. Tom McClintock, are waiting to see the final bill.

“Because it is likely to double the standard deduction and lower overall tax rates, many Californians who claim the SALT deduction now will still end up paying lower overall taxes,” McClintock said in a statement. “I want to be sure that this is true for the entire middle class, and am reserving judgment until the details of the plan are released.”

Corporate tax rate

Reports that tax writers plan to phase in the proposed reduction in the corporate tax rate are not true, Brady said, noting no decisions have been made. He declined to say whether phasing in the 20 percent rate is currently a part of discussions, but suggested they hope to avoid that.

“At this point, we’re trying to get the growth right up front,” he said. “So 20 percent is pretty important.”

At the conclusion of Monday’s meeting with Ways and Means Republicans, Brady said with a smile on his face that “very, very few” issues remain unresolved. 

Senate Republicans, who are working on a separate bill, are considering reducing the corporate tax rate gradually over the next five years, according to GOP sources. A spokeswoman for the Senate Finance Committee declined to comment. 

A gradual phase-in could improve the chances that Republicans find a way to fully offset the reduction by the end of the 10-year-budget window, when it will need to be deficit neutral if it’s to become permanent policy under Senate budget reconciliation rules.

But matching “pay-fors” to each year of the implementation time period could be complicated and could also result in slower economic growth in the beginning few years. 

Joe Williams contributed to this report.