WASHINGTON – The House on Thursday passed the most sweeping tax legislation in 31 years, a $1.5 trillion cut that aims to reduce rates and slash many deductions – including the write-off for state and local taxes, which Gov. Andrew M. Cuomo and even many New York Republicans say is essential to the state.
Yet the 227-205 House vote exposed divisions that will make it a challenge for Congress to develop a final tax package.
Five of New York’s nine House Republicans joined with all House Democrats in opposing the measure, fearing that its sharp limitation of the deduction for state and local taxes will hurt the state.
Thanks to a compromise engineered in part by Rep. Tom Reed, a Corning Republican, the House bill limits the so-called SALT deduction to the first $10,000 of property taxes instead of ending the SALT deduction entirely, as the Senate measure would do.
Reed vowed to try to preserve what’s left of the SALT deduction if the Senate passes its tax legislation and a conference committee convenes to hammer out a House-Senate tax deal. He has said he would oppose any final tax bill that doesn’t save part of the SALT deduction.
“We’ve still got a lot of work to do,” said Reed, who sits on the tax-writing Ways and Means Committee. “We’re going to work with our Senate partners. We’re going to make sure we improve this bill as we go through the negotiations between the House and the Senate. But I’m very optimistic that we’re on schedule. We will deliver this tax relief for hard-working people back home by the end of the year and they’ll start seeing that relief show up in their paychecks as soon as the first or the second week of January.”
Another potential complication surfaced, though, on the other side of Capitol Hill, where Republican senators grappled with a new report from the bipartisan Joint Committee on Taxation showing that their bill would increase taxes on low-income Americans.
That gave Democrats such as Sen. Kirsten E. Gillibrand of New York renewed energy to try to build opposition to the tax plan.
“This tax plan hurts middle class families to give tax cuts to the wealthy and big corporations – and the Senate version is even worse,” Gillibrand wrote on Twitter. “Sound the alarm. It’s time to speak out.”
The House bill lowers the corporate tax rate from 35 percent to 20 percent while simplifying rates on individual taxpayers, who would enjoy a near-doubling of the standard deduction to $24,000 for a family of four.
Many Republicans argue that that higher standard deduction will make it so that many taxpayers would stop itemizing, meaning they won’t miss the SALT deduction they are losing in part and the other deductions they are losing in their entirety.
The tax vote was a tough one for New York Republicans because New York’s status as a high-tax state means that some taxpayers will suffer without the SALT deduction. Reed and Rep. Chris Collins, a Republican from Clarence, voted for the tax bill, as did two other New York Republicans, Rep. John Katko of Camillus and Rep. Claudia Tenney of New Hartford.
“Presented today with a bill that provides tax cuts for the vast majority of working families in my district and which will allow our local businesses the opportunity to invest in our workforce, I chose to vote yes,” Katko said after the vote.
But five of the state’s Republican House members – most of them from downstate – voted against the tax bill because of the cut in the SALT deduction.
“Most middle-income taxpayers in our district would receive tax cuts under this bill,” said Rep. John Faso, a Republican from Kinderhook who represents the Hudson Valley. “However, the statewide impact of the proposal will dramatically and negatively impact state revenues as wealthier taxpayers and their businesses flee New York State to lower taxed jurisdictions.”
That’s just what Cuomo has been saying about the bill’s statewide impact.
Speaking to reporters after an event in Long Island, Cuomo eviscerated the New York lawmakers who voted for the measure, saying: “This was a betrayal of the people who elected you because this will hurt their constituents.”
House Republicans cut the SALT deduction just because they were looking for savings in the bill, the governor added.
“They’re using New York as a piggy bank to finance the corporate tax cut,” Cuomo told reporters after the appearance on Long Island. “It’s disgusting. It’s reprehensible. It’s a direct attack on this state. It’s going to do real damage. I only pray that the Senate can stop it because the House played politics in a way I’ve never seen politics played before.”
The SALT deduction will be just one of the issues the Senate will have to tackle. A day after Sen. Ron Johnson, a Wisconsin Republican, said he opposed the measure because it doesn’t help small businesses as much as corporations, the Joint Tax Committee said the measure would mean higher taxes for low-income Americans starting in 2021.
Nevertheless, Senate Majority Leader Mitch McConnell, a Kentucky Republican, defended his chamber’s bill.
“This is our chance to set a new course,” he said on the Senate floor. “This is our opportunity to jump start the economy and boost job growth. Passing tax reform is the single most important thing we can do right now to support those left behind by the Obama economy.”
Senate Minority Leader Charles E. Schumer, a New York Democrat, vowed again to vigorously oppose the GOP tax bill.
“The Senate bill would raise taxes on nearly 20 million middle-class Americans by 2027,” Schumer said. “Meanwhile, folks making over a $1 million a year will get an average tax cut of $50,000. People say, ‘Well, they have more money, they should get a bigger tax cut.’ No, the wealthy are doing great. They don’t need any tax cut. Give the money to the middle class.”
In other words, the Senate – whose tax bill is moving through the Finance Committee this week – is beginning its tax debate much like the House ended its consideration of its measure.
Collins remained strongly in support of the tax bill even though it slashes the SALT deduction. He said on Twitter that the bill will save the average Erie County family of four $1,845 on their taxes.
“I am only looking out for the people of Western New York and the Finger Lakes, and their wallets,” Collins said. “The tax reform package ultimately sent to President Trump’s desk will improve the lives of my constituents and will truly Make America Great Again.”
But Rep. Brian Higgins, a Buffalo Democrat who serves on the Ways and Means Committee, took a starkly different view of the House measure, which, according to the nonpartisan Tax Policy Center, delivers 80 percent of its benefits to the top 1 percent of wage earners.
“This is nothing more than a hit job on middle America to pay for a massive tax cut for corporate America,” Higgins said on the House floor, noting that the bill eliminates an array of other popular deductions, including those for student loan interest and medical expenses. “The only certainty from this charade is slower economic growth, more income inequality and exploding deficits.”