WASHINGTON – House Republicans appear headed toward passing a massive tax bill Thursday that could, if approved by the Senate, lead to radical changes for the 152,000 or so metro Buffalo taxpayers who stand poised to lose at least part of the state and local tax deduction they are accustomed to claiming.
The two parties continued their heated debate on the measure on Wednesday, with Republicans insisting that lower tax rates and a higher standard deduction would make the bill a winner for most middle-class Americans – and Democrats warning that the loss of the so-called "SALT" deduction could devastate many New York taxpayers.
In the meantime, a Buffalo News analysis of Internal Revenue Service data from 2015 showed just how important the SALT deduction is locally. The analysis showed that for the 27.5 percent of Erie and Niagara county taxpayers who itemized in 2015, almost all claimed the SALT deduction, which was by far the largest write-off. The largest share of that deduction went for state income taxes — a part of the write-off that would disappear under both the House and Senate versions of tax reform.
What the analysis couldn’t show, though, was how many local people would suffer from a cut in the SALT deduction when, at the same time, the House is proposing lowering rates and nearly doubling the standard deduction to $24,000 for a family of four. Doing that would mean that some families could take the standard deduction and not even have to worry about a cut to the SALT deduction, although it’s unclear how many local taxpayers would benefit from that GOP tax simplification proposal.
Senate Minority Leader Charles E. Schumer, a New York Democrat, called on House Republicans from New York to oppose the bill, saying — as he has for weeks — that a cut in the SALT deduction would hurt the state in several ways.
“There are going to be, in each of their districts, thousands and thousands of people who will pay more” under the bill, Schumer said.
He noted that the House bill that cuts the SALT deduction comes with the elimination of deductions for college loan interest, medical expenses and other items — which, together, could negate the benefit of the promised higher standard deduction. Schumer also again cited a PricewaterhouseCoopers study that said the total loss of the SALT deduction could cut home values by up to 10 percent, and repeated his contention that the move would hurt the state economy to the point where state and local governments lose revenues.
But Rep. Chris Collins, a Republican from Clarence, said the Buffalo News analysis — which shows the new standard deduction would be nearly double the average SALT deduction in 2015 — indicates that the vast majority of taxpayers in his district need not worry about losing out under the GOP tax bill.
“As I have been saying all along, 95 to 98 percent of my constituents will see a reduction in their taxes regardless of the SALT deduction,” Collins said. “Most taxpayers in my district that do currently itemize will no longer need to because our tax plan doubles the standard deduction, and they will see lower taxes.”
Collins said Schumer, other Democrats and the media have been trying to scare voters into opposing the tax bill.
“Taxpayers in my district have been lied to and misled by the liberal left and the proof is in the numbers,” Collins said.
The tax reform bill that the House is scheduled to vote on Thursday would limit the SALT deduction to the first $10,000 in property taxes paid. The Buffalo News analysis showed that the average deduction for property taxes was far less than that: just $5,647 in 2015.
However, the House bill would eliminate the deduction for state and local income taxes – which made up the largest share of the SALT deduction locally, averaging $8,214 per taxpaying household.
Meantime, the Senate version of the tax reform bill would repeal the SALT deduction entirely.
The cut to the SALT deduction has proved to be a huge concern for Republicans from high-tax states such as New York. Already, five of New York’s nine GOP House members have said they would vote against the tax bill, and only two — Collins and Rep. Tom Reed of Corning — have said they would vote for it.
The New Yorkers’ concern is based in the fact that the higher a state’s taxes are, the more its residents are likely to lose if the SALT deduction goes away — and the Empire State remains one of the highest-taxed states in the nation. In fact, according to an analysis by the left-leaning Institute on Taxation and Economic Policy, New York, California, Maryland and New Jersey are the only states with taxes high enough to guarantee that in the aggregate, their state residents will pay more under the House GOP tax bill rather than less.
Critics of the SALT deduction, such as the right-leaning Tax Foundation, argue that the write-off favors wealthy taxpayers in those high tax states. The Tax Foundation recently reported that 90 percent of the benefit of the SALT deduction goes to taxpayers who make more than $100,000 annually.
Conservatives also say that eliminating the deduction would free up revenues to use for other tax cuts – and it would certainly do that. Federal figures indicate that ending the SALT deduction would create $102.28 billion in revenues next year and $1.17 trillion through the year 2026.
To hear Rep. Brian Higgins tell it, trimming SALT makes it easier for Republicans to finance a tax plan that, according to several independent analyses, delivers most of its benefits to the wealthy and to corporations. The bill cuts the corporate tax rate from 35 percent to 20 percent.
“My position all along has been that the elimination of the state and local tax deduction is all about a chase for revenues to support a corporate tax cut that’s not needed,” said Higgins, a Buffalo Democrat who serves on the tax-writing Ways and Means Committee.
House sources said Thursday they expect the tax bill to pass even though the loss of the SALT deduction will cost it Republican votes from New York and other high-tax states.
The future of tax reform is uncertain beyond that, though.
The Senate bill differs from the House measure in several ways: most notably, the Senate version repeals the Affordable Care Act’s mandate that all Americans buy health insurance. That could complicate the Senate leadership’s search for votes for the measure, as well as negotiations on a compromise bill with the House if the Senate measure passes.
Nevertheless, House Republicans discussing their tax bill Thursday sounded as if they were on the edge of victory.
Reed, who also sits on the Ways and Means Committee, said it’s fine by him if the cut in the SALT deduction means higher taxes for some downstate residents, particularly because the change won’t hurt many people in his Southern Tier district.
“We have to fix our broken tax code, and if the top 1 percent downstate won’t see a tax cut, that is okay,” Reed said. “This is a once-in-a-generation opportunity to make real changes. These changes will mean bigger paychecks and more job opportunities for those I represent.”