President Donald Trump is unhappy with a measure in the GOP tax overhaul which would eliminate federal tax breaks for Americans who face the heftiest tax rates at the state level.
Trump said this week that the White House will “be adjusting” the GOP tax proposal, reportedly in an effort to revisit portions of the overhaul which eliminate state and local tax deductions for federal filers living in high tax states like New York, New Jersey, California and Connecticut.
New York Gov. Andrew Cuomo has whimpered that losing the state and local deductions would be a “death blow” for his state, where about 35 percent of filers are writing off local taxes on federal returns.
But Trump has also reportedly heard concerns from Republican lawmakers hailing from the high-tax states. With little chance that the state governments will cut taxes at the local level to ease the pain of losing the so-called SALT deductions, there are concerns that eliminating the breaks will put the squeeze on middle class residents and small business owners.
Still, it isn’t clear whether the administration is yet unified on how to proceed.
Treasury Secretary Steven Mnuchin said Thursday that axing the deduction remains a key goal for tax reform.
“We can’t have the federal government continue to subsidize the states,” he told CNBC. “That’s a major loophole that we’re trying to close in simplifying taxes.”
For Trump, keeping the deductions in could become a point of contention with conservative Republicans who believe closing the loophole will eventually force high tax states to rework budgets and cut taxes or risk an exodus of business and workforce talent to friendlier locales. But with the administration under pressure to achieve an agenda victory ahead of the 2018 midterms, the bigger threat is probably Republicans from the high tax states like New York’s Rep. Peter King.
“This is probably the biggest obstacle they have to overcome to get to 218,” King told Bloomberg. “Right now, they can’t get there without us.”