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Republicans may scrap tax cuts' next phase after backlash on state and local tax deductions

Republicans may scrap tax cuts' next phase after backlash on state and local tax deductions
Rep. Leonard Lance, a Republican from New Jersey — which has the highest property taxes in the country — said he doesn’t support a tax bill with a provision capping the federal income tax deduction for state and local taxes. (J. Scott Applewhite / Associated Press)

House Republicans had planned to use a second phase of tax cuts to force Democrats into a difficult vote ahead of the midterm election. Now party leaders may drop the effort, fearing it could backfire by antagonizing voters in some hotly contested congressional districts.

The proposal would make permanent the individual changes in last year’s overhaul — including the $10,000 annual cap on the federal income tax deduction for paying state and local taxes, one of the law’s most disputed provisions. That would put Republican lawmakers in high-tax states such as California, New York and New Jersey in the tricky position of either supporting the cap or voting against tax cuts backed by their party.

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Largely because of that dilemma, House Republicans are hitting the pause button on “tax reform 2.0” legislation, according to three GOP aides who requested anonymity to speak about the matter. The lawmakers want to weigh the political benefits and risks of a vote on the bill in the coming weeks and assess whether they have enough support to pass it.

This shows the problem the Republican Party is encountering this year as it tries to take its signature policy achievement of the last two years to voters, and as Democrats threaten to snatch away the GOP’s majority in the House.

Shelve it?

One option for Republican leaders is to decide to just have the tax-writing Ways and Means Committee mark up the bill and hold a vote for it in the next two weeks before shelving it. Or they could move forward and hold a floor vote by the end of the month. A decision to put the bill on ice before the election would signal Republicans’ need to protect vulnerable members.

A spokesman for House Majority Leader Kevin McCarthy didn’t respond to a request for comment.

Rep. Leonard Lance, a Republican from New Jersey — which has the highest property taxes in the country — said in a statement that he doesn’t support a tax bill that includes the provision capping the federal income tax deduction for paying state and local taxes, known as SALT. He said he thinks the measure would have a better chance of passing without it.

Lance’s district includes many affluent towns west of New York City, including Bedminster, home to one of President Trump’s golf clubs. It’s considered one of 57 competitive House races, according to the Cook Political Report. About a third of those races are in districts located in high-tax states — California, New York, New Jersey, Minnesota and Illinois — where the SALT issue has been a part of the debate.

On the spot

A vote prior to the election would put those members on the record about controversial legislation where the SALT provision, Trump or both are unpopular.

House Ways and Means Chairman Kevin Brady released a framework for the second round of tax cuts in July and held listening sessions with members in August. In addition to making the individual changes permanent, the package of bills would make changes to retirement savings accounts and create special tax breaks for start-up companies.

Brady, a Texas Republican, probably doesn’t want to strip the SALT provision from the 2.0 bill because it would open the floodgates for members to start requesting tweaks to other tax breaks that the 2017 law scaled back and that are set to expire in 2026, such as decreasing the cap on the home mortgage interest deduction.

Brady’s committee is set to mark up the tax legislation this week, and he told reporters Tuesday that it’s “full steam” ahead to have the legislation ready for a floor vote this month. He declined to say whether House GOP leaders had committed to a floor vote before the November elections.

Lance, along with 10 other Republicans from New Jersey, New York and California, voted against the tax bill over concerns that the SALT limit would raise taxes on constituents. Some high-tax-state Republicans, including Rep. Tom MacArthur (R-N.J.), voted for the bill even though the SALT provision was unpopular in their districts.

Issue of timing

Another concern about holding the vote before the November elections: Many property tax bills are issued or due in October, including in some states hit hardest by the SALT cap. Reminding voters that they may not be able to deduct all of those levies as their taxes are due — almost literally rubbing SALT into their wounds — would be a “huge gift” to Democrats, said Celinda Lake, a Democratic pollster.

Still, the SALT cap is a nonissue in many solidly Republican districts of low-tax states, where most voters didn’t receive tax bills high enough to exceed the $10,000 cap.

Messaging tool

The second-phase tax bill always has been viewed as a political messaging tool to help House Republicans, since it has a slim chance of moving through the Senate. Last year’s tax law passed without any Democratic votes through a special process called reconciliation.

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The tax overhaul is the Republicans’ signature legislative accomplishment since Trump took office. After failing to pass healthcare legislation and amid a string of controversies in the White House, GOP lawmakers saw tax cuts as the issue that would resonate most with voters this year.

But the new law never turned into the political gold that Republicans had hoped. Polls consistently show that fewer than half of Americans approve of the tax cut, and many voters see it as disproportionately helping the wealthy and large corporations. Against that backdrop, making the individual cuts permanent, or at least talking about doing so, was seen as helping to make the tax law more attractive to the average voter.

“There will be a high correlation between Republicans who don’t win reelection and those who don’t talk about tax cuts,” said Ryan Ellis, a Republican tax lobbyist.

Democrats see it differently.

Republicans, including Erik Paulsen of Minnesota and Peter Roskam of Illinois, were heavily involved in the passage of the legislation, and another vote on the issue could give their Democratic opponents more fodder for campaign ads, said spokesmen from the respective Democrats’ campaigns.

“People thought the tax bill was bad, but it was over and in the past,” Democratic pollster Lake said. “A vote makes the issue current. It makes it part of the ongoing agenda.”

3:30 p.m.: This article was updated with comment from House Ways and Means Chairman Kevin Brady.

This article was originally published at 11:50 a.m.

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