The House chairman overseeing Republican efforts to rewrite the federal tax code said Wednesday there is a deal in the works to preserve at least part of the deduction for local property taxes.
That deduction is used heavily in the Northeast, with the average deduction worth $22,169 in New York, $19,664 in Connecticut and $16,442 in New Jersey, according to the Government Finance Officers Association.
"I expect ... before the bill is laid out next week, that a solution will be announced," House Ways and Means Chairman Kevin Brady, R-Texas, said at a breakfast hosted by The Christian Science Monitor. "It’s a work in progress, I think we’re making good progress."
In the past, Brady and House Speaker Paul Ryan, R-Wis., have vigorously defended a full repeal of taxpayers' ability to deduct state and local taxes before calculating what they owe in federal income tax.
But a full repeal is threatening to derail Republican hopes of passing a tax bill by the end of the year because House Republicans from New Jersey, New York and other states with high local taxes have said they may not support a key budget resolution up for a vote on Thursday.
Brady disclosed no details of the deal, but he indicated it might affect only property taxes and not state income taxes, because the property tax burden does not take into account someone's ability to pay. Some options discussed include allowing for a single deduction for home ownership that includes mortgage interest and property taxes, or limiting the availability of the deduction to households earning less than a certain threshold, such as $400,000.
"One of the things I’m doing is listening very closely to our representatives who are in states where the state and local governments impose just heavy, heavy burdens of taxation that really make it tough on families and businesses," Brady said. "We think there is a way forward to help them with some of those local taxes."
Rep. Tom MacArthur, R-N.J., said this week the budget resolution might not pass if there is no accommodation for state and local tax deduction.
MacArthur voted for a House version of the budget on Oct. 5 that passed 219-206. But the version that came back from the Senate includes a nonbinding provision saying the state and local deduction should be eliminated.
The budget is important because it includes binding language that would prevent a filibuster by Democrats on a tax bill. That means the Senate, where Republicans hold 52 seats, could pass a bill with 50 votes rather than the 60 votes needed to end a filibuster.
Democrats are overwhelmingly opposed to the budget and fought Wednesday against a procedural vote to set up Thursday's final vote.
"This deduction has been part of tax system before there was an income tax, going back to the Civil War," said Rep. Bill Pascrell, D-N.J. "How do you justify keeping the deduction viable for corporations. They can deduct their state and local taxes but the families of America can’t? How do you justify that?"
Senate Minority Leader Chuck Schumer, D-N.Y., called eliminating the deduction "a dagger aimed at the heart of New York's middle class," and urged the defeat of any effort to end or reduce it.
“We have to kill this now,” he said. “New York has real say. If every member of the New York delegation said they’re voting no, the bill would go down.”
Even a compromise would still reduce New York’s home prices, reduce funding for police, fire and education, and keep companies from locating in upstate New York, Schumer said.
“The best way to fix it is keep the entire state and local deduction,” he said.
Rep. Leonard Lance, R-N.J., who opposed the Oct. 5 budget, said he remains opposed, especially since the Senate amendment specifically calls for the elimination of the deduction.
"I didn’t vote on the budget in the House several weeks ago when there was no assurance the state and local tax deduction would be taken off the table, and now it's gotten worse," Lance said. "I'm a solid no and my leadership knows that."
Keeping the deduction intact could pose other problems, because eliminating it was expected to raise $1.3 trillion, according to the Tax Policy Center, that was to be used to offset lowering other rates for individuals and corporations.
Contributing: Nicole Gaudiano