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GOP tax reform: The property tax deduction won't be scrapped

Republican Party division
How will the divisions in the Republican Party play out ahead of 2018 elections? 06:19

Homeowners, breathe easier: the property tax deduction will live on. 

House Republicans from high-tax states who threatened to sink President Donald Trump and the Republicans' tax plan have wrung a key concession from GOP tax-writers, days ahead of the rapidly shape-shifting plan getting a public rollout.

The breakaway lawmakers, from states such as New York and New Jersey, had threatened to sink the sweeping tax-cutting plan that is a pressing legislative imperative for Trump and the Republicans. The GOP House members have opposed the plan's proposed elimination of the federal deduction for state and local taxes, insisting it would hurt their constituents and subject them to being taxed twice.

Trump administration officials had contended the deduction forces the rest of the country to subsidize homeowners in high-tax, big-spending states.

The head of the House tax-writing committee, Rep. Kevin Brady, said Monday taxpayers will be able to continue to deduct local property taxes on their federal income-tax returns.

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Brady, who heads the House Ways and Means Committee, said in a statement, "At the urging of lawmakers, we are restoring an itemized property-tax deduction to help taxpayers with local tax burdens."

The deduction for state income taxes, however, would be ended. The change means there would be three itemized deductions retained: for home mortgage interest, charitable donations and local property taxes.

But as one rebellion appeared quelled, another crack opened in the support for the nearly $6 trillion plan, as a powerful lobbying group in the housing industry withdrew its blessing for the GOP's top economic priority.

The move by the National Association of Home Builders added to threats against the legislation Republicans with strong conservative views and defenders of 401(k) retirement savings plans.

The mounting opposition to the plan comes as House Republicans work behind closed doors on proposed legislation for the plan that they'll unveil this Wednesday.

House Speaker Paul Ryan said he's been warning Republican lawmakers that opposition will only intensify as details are released. Speaking to local business leaders in Wisconsin after the homebuilders' action, Ryan accused special interests in Washington of trying to derail the tax plan by sowing "confusion and chaos."

And amid speculation over further changes to the plan, the White House rebuffed suggestions that House GOP tax-writers are considering phasing in the planned cut in the corporate tax rate, from 35 percent currently to 20 percent by 2022.

Trump had "laid out his principles and it doesn't include the phasing in" of corporate tax cuts, spokeswoman Sarah Huckabee Sanders told reporters at a briefing. The White House hasn't "adjusted or changed our principles" on overhauling the tax system, Sanders said.

White House officials said Trump wants the tax cuts to swiftly boost economic growth — a prime campaign promise — and a gradual corporate tax reduction wouldn't bring it fast enough.

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The plan calls for doubling the standard deduction used by most average Americans to $12,000 for individuals and $24,000 for families, and increasing the per-child tax credit. In addition to slashing the corporate tax rate, the plan also seeks to repeal inheritance taxes on multimillion-dollar estates, a huge break for the wealthy. The number of tax brackets would shrink from seven to three or four, with respective tax rates of 12 percent, 25 percent, 35 percent and to be determined.

Republicans are driven to enact the first major tax overhaul in some 30 years to show a legislative accomplishment to voters in next year's elections and keep their majority in Congress. They were stung by their failure this year to replace President Barack Obama's signature health care law.

As with that failed legislative effort, though, Republican leaders are writing the critical tax legislation in secret with Democratic lawmakers excluded and no hearings planned before formal drafting begins.

If the state-local deduction were entirely repealed, it could provide more than $1 trillion over 10 years to help pay for the deep tax cuts under the tax overhaul plan.

Brady's Senate counterpart, Finance Committee Chairman Orrin Hatch, told reporters that eliminating the state-local deduction wasn't helpful. "I don't think that's going to go anywhere," he said. "It's so accepted by states and local areas. It's a system that's worked very well.'"

The homebuilders' group objected to the removal from the tax plan's latest version of a homeownership tax credit.

A battle over contributions to 401(k) retirement accounts has broken open. The financial industry and some Republican lawmakers insist that the plan not change the tax benefits of the popular savings vehicles, as has been floated by GOP leaders. Trump has given conflicting signals, promising the retirement plans' structure won't be touched, but then saying changes may be on the table.

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