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Trump adviser: No change expected in state and local tax deduction

WASHINGTON – One of President Trump's top economic advisers said Wednesday that he doubts Congress will ease the burden placed on high-tax states like New York by a 2017 change that limited the state and local tax deduction to $10,000.

Two months after Trump told reporters that he was open to changes what has come to be known as the "SALT" deduction, the chairman of the National Economic Council, Larry Kudlow, said there is little interest in that idea on Capitol Hill.

"I just don't expect to see tax reform opened up," Kudlow said at a breakfast with reporters, which was sponsored by the Christian Science Monitor.

Asked after the breakfast why Congress couldn't revisit an issue that's cost high-tax states hundreds of millions of dollars in tax revenues, Kudlow indicated that doing so would blow too big a hole in the federal budget.

"The bean counting is not good," Kudlow said. "It's a $700 billion plug. It's a lot of money, right? And we don't really have any money. So I think it's very hard to do that."

Kudlow also offered a spirited defense of the Republican tax overhaul that Congress passed in 2017. He downplayed the tax bill's impact on middle-income homeowners in states such as New York, saying many would benefit from changes in the tax law such as the doubling of the standard deduction.

"They're not really paying very much, anyways, in income taxes," Kudlow said.

Kudlow's comments stood in sharp contrast to what both his boss – President Trump – and New York Gov. Andrew M. Cuomo have had to say about the SALT deduction in recent months.

Trump told regional reporters in February that he was "open to talking about" changes to the deduction.

“There are some people from New York who have been speaking to me about doing something about that, about changing things," Trump said. "It’s been severe on them."

Cuomo, meanwhile, has blamed the limit on the deduction for a deep drop in state revenues, resulting from people changing their legal residence to avoid the double tax whammy of high state and federal taxes they would face if they stayed in New York.

Kudlow told reporters Wednesday that it was primarily the wealthy who were affected by the deduction limit, which took effect in the current tax filing season.

But he said the end of the Alternative Minimum Tax – a special rate aimed at wealthy taxpayers – would offer protection for a lot of taxpayers in states like New York even if they would be hurt by the limit on the deduction.

"Many of the upper income brackets, the upper upper income brackets, are actually getting a deduction," Kudlow said.

Cuomo offered a very different take on things when discussing the issue with reporters last month. He cited a hypothetical example of a downstate family with an income of $150,000 that paid about 10 percent of its income to state taxes. He noted that this couple would be $5,000 over the SALT deduction limit even though they are not high-income.

That's proof, Cuomo said, that the change is hurting middle-income taxpayers across New York State.

"Fifty-two counties have average taxes of above the SALT $10,000 cap," Cuomo said. "Fifty-two counties will see a tax increase."

But Kudlow seemed to dismiss the issue as something states like New York could solve on their own.

"You know, you could always lower your taxes," Kudlow said.

Kudlow expressed doubt that House Democrats would take up legislation aimed at expanding or fully restoring the state and local tax deduction. Rep. Tom Reed, a Corning Republican who sits on the tax-writing House Ways and Means Committee said he wonders the same thing.

"I don't know how they could support repealing that SALT cap with their their rhetoric and their position that the 1 percent needs to pay their fair share," said Reed, who nonetheless added that he supports repealing the $10,000 limit on the deduction.

However, a working group of about a half-dozen House Democrats – including Rep. Brian Higgins of Buffalo – met for the first time Thursday to try to come up with a politically palatable way of easing the burden the $10,000 deduction limit has placed on blue-state taxpayers.

Higgins supports a bill that would fully restore the SALT deduction, but he said the working group would be looking for a way to address the issue that could pass both the Democratic House and the Republican Senate.

In other words, the working group will be looking to answer a question: "What is it that we can get through to provide relief to those taxpayers that are disproportionately impacted by this?" Higgins said.

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