The decision by Senate Republicans to end the deduction is likely to provoke an intense battle not only with Democrats from large states with high state and local taxes, but also the House, where GOP lawmakers would only allow people to deduct as much as $10,000 in property taxes from their federal income tax returns.
In an interview on Bloomberg TV, Sen. Rob Portman, R-Ohio, said “federal taxpayers should not be subsidizing states that want to have higher taxes. If that’s what they want to do, that’s fine.”
“And second, I do think if you look at state and local taxes it is something that is relatively regressive,” Portman said. “In other words, over 50 percent of the benefit goes to people making over $200,000 a year.”
But Senate Minority Leader Chuck Schumer, D-N.Y., said ending the deduction will “be a three-alarm fire for every House Republican in California, New York, New Jersey, Virginia, Washington, and Illinois, Colorado, and Minnesota.”
“Senate Republicans are telling House Republicans that there will be no compromise on state and local deductibility,” Schumer said in a floor speech. “It’s full repeal or bust because Senate Republicans need the revenue raised by ending this popular middle-class deduction.”
A report by the Government Finance Officers Association, which represents state and local government finance officers, concluded that 26 percent of Ohio households use the state and local deduction on their tax returns. By contrast, 35 percent of California households use the deduction and 34 percent in New York.
By scrapping the deduction, the federal treasury would save $1.3 trillion during the next decade — savings that help Republicans finance reductions in corporate and individual tax rates.
The Senate released its plan as the House Ways and Means Committee approved the House GOP tax bill by a vote of 24-16. The full House is expected to vote on the package next week.
White House press secretary Sarah Sanders said President Donald Trump “applauds” Senate Republicans for releasing their plan, saying “we will continue working with Congress to deliver tax cuts and reforms for hard-working Americans by the end of the year.”
In a floor speech, Portman called the bill “an opportunity … to finally fix our tax code. And it is broken.” Portman said if the bill becomes law, “we’re going to create more jobs and higher wages.”
Like the House bill, the Senate GOP plan reduces the corporate tax rate from 35 percent to 20 percent, although the Senate delays that reduction until 2019.
The bill creates seven individual tax brackets compared to just four in the House bill. The Senate brackets range from a low of 10 percent to 38.5 percent for the wealthiest taxpayers. The other five brackets would be 12 percent, 22.5 percent, 25 percent, 32.5 percent and 35 percent.
The plan retains current deductions for home mortgage interest, 401 K retirement contributions, charitable contributions and medical expenses. Both the Senate and House measures end the personal exemption, which allows taxpayers to take a $4,050 exemption for every family member.
The standard deduction, which is the amount people who don’t itemize can deduct from their income, would nearly double to $24,000 a year for married taxpayers and $12,000 for those who are single filers. Currently, the standard deduction is $12,700 for married couples filing jointly and $6,350 for single taxpayers.
The increase in the standard deduction is designed to simplify the code. If Americans choose the new higher standard deduction, they could not take deductions such as home mortgage interest. But they would be able to file their taxes on a single card.
The Senate plan could add as much as $1.5 trillion to the nation’s publicly held debt during the next decade. Portman and other GOP lawmakers say the tax reductions will spark the economy and generate more tax revenue, the non-partisan Congressional Budget Office has projected that even without any change in tax laws, the federal government will add a staggering $10 trillion to the publicly held debt during the next decade.
Michael Peterson, president and chief executive officer of the Peterson Foundation, a non-profit in Washington, D.C., that champions lower deficits, said “this bill passes the buck to the next generation,” adding that “voluntarily adding another $1.5 trillion to our national debt is going in the wrong direction.”
Michael Dulman of the Washington Bureau contributed to this story.