WASHINGTON – The top House Republican on Thursday blasted high-tax states that deliver billions to the federal government as he faced a backlash from rank-and-file GOP lawmakers over a sweeping tax-cut proposal.
Speaker Paul Ryan went on the offensive against high-tax states like California, New York and New Jersey, even though disgruntled GOP lawmakers from those states need to be brought on board to support the $6 trillion tax overhaul. The Republican lawmakers from high-tax states oppose the plan’s proposal to repeal the popular federal deduction for state and local taxes.
But Ryan contended the rest of the country is “propping up profligate, big-government states” that levy high taxes on their residents and spend recklessly.
“States that got their act together are paying for states that didn’t,” the Wisconsin lawmaker said at an appearance at the conservative Heritage Foundation.
In fact, California, New York and New Jersey send many billions more in taxes to Washington than they get back in federal spending, new data show. Divided by total state residents, New York gets back 81 cents for every $1 it pays in, New Jersey receives 74 cents and California 96 cents, according to an analysis released last month by the Rockefeller Institute of Government.
New York contributed $48 billion more in taxes to the federal government than it received in government spending – the biggest deficit the analysis found. New Jersey gave $31 billion more in taxes than it got back and California $17 billion more, the data show. The figures were for the budget year ending Sept. 30, 2015.
The state-local deduction is claimed by around 44 million people and costs the government an estimated $1.3 trillion in lost revenue over 10 years.
Opposition to ending the deduction has produced an unusual alliance of the Republican lawmakers from high-tax, Democratic-leaning states; state and local government officials; public employee labor unions; and business groups like Realtors. Wary of the financial pinch their constituents and members could sustain from losing the deduction, they are pressing the Trump administration to reconsider.
“This is really almost like a life or death issue for districts like mine,” said Republican Rep. Peter King, who represents a district on New York’s Long Island. “This cannot be called a rich district. It serves a lot of middle-income people.”
With Republicans splintered, the future of the tax overhaul plan is threatened by GOP defections, even as the success of the package is a political imperative for Republicans who have pinned their hopes on notching a big legislative achievement to help them retain control of Congress in next year’s elections.
Rep. Chris Collins, R-N.Y., a Trump ally, warned Wednesday that the affected states would need some “accommodations” to go along with eliminating the deduction for state and local taxes paid, possibly a cap on how much could be deducted.
Some opponents contend that repealing the deductions would subject people to being taxed twice and would amount to a federal revenue grab on the backs of homeowners who pay property taxes. And governors like New York Democrat Andrew Cuomo, a potential 2020 presidential candidate, have rallied against the change.
“There will be a transfer of wealth of over a trillion dollars to the federal coffers,” said Matt Chase, executive director of the National Association of Counties.
Randi Weingarten, president of the American Federation of Teachers, said eliminating the deduction would not only “devastate funding for public schools, infrastructure, law enforcement and other vital services” but also boost taxes on the middle class. “For what? Tax cuts for the wealthy.”
The White House has argued that the plan is focused on helping middle-class workers, contending that lowering corporate rates will boost jobs while the tax cuts and simpler tax code will reduce their burden.
Administration officials contend the rest of the nation shouldn’t have to subsidize states like California and New York that use the state and local tax deduction in large numbers.
The states have come in with a strong retort.
“New Yorkers send over $50 billion more to the U.S. government than they receive back. So New Yorkers, and in particular Long Islanders, are subsidizing the rest of the country; not the other way around as you suggested,” wrote Kevin Law, president and CEO of the Long Island Association, in a letter to Treasury Secretary Steve Mnuchin.
A possible compromise floated by the state-local defenders cracked open another fault line: Homeowners would be forced to choose between two popular deductions – one for local property taxes under the state-local deduction, the other for mortgage interest.