President Trump and Republican congressional leaders are desperate to “achieve” something — anything — by Christmas. One goal is to deliver a lump of coal to disaster victims.
The victims include future burned-out homeowners in wildfires. The Republican Santa could be delivering down a chimney that is standing alone amid charred ruins.
It’s one of several whammies hitting middle-class Americans from the GOP tax plan, especially in California and other high-tax states. Among other things, Republicans are set on eliminating the tax deduction for uninsured casualty losses unless a national disaster is declared.
People with personal property damaged by disaster currently can deduct the uninsured loss when itemizing on their federal tax returns. Only the dollar amount that exceeds 10% of adjusted gross income can be deducted. But that is quickly reached when a home is destroyed.
In California, we’re regularly ravaged by wildfires, floods and earthquakes. Someday, there’ll be “the big one.” Other states suffer from tornadoes and hurricanes. Also tax-deductible are losses from accidents, thefts and vandalism.
About 10,000 California tax returns claimed $700 million in casualty loss deductions in 2015, according to the state Department of Finance. It’s a good bet there’ll be a lot more this year after the monstrous wine country and Southern California wildfires.
Victims of those fires will still be allowed to deduct their uninsured losses. It’s not clear whether they’ll need to have all their costs totaled by the time they file tax returns for 2017.
Rep. Mimi Walters of Irvine — one of several California Republicans targeted by Democrats for ouster in November’s elections — has introduced legislation she says will guarantee that this year’s wildfire victims can deduct their losses. It also will allow them to withdraw their own money for rebuilding from retirement accounts without being penalized.
But victims of future calamities will be cut loose to fend for themselves absent a national disaster declaration.
Not all casualties occur in natural disasters, of course. Kitchen fires can set a house ablaze. Cars can be stolen. Houses burglarized. Insurance might not cover it all. Tough.
A grease pan lights up, igniting the house. That’s a disaster for one family, but it doesn’t merit a presidential declaration. No deduction.
“Those guys would get the shaft,” says Rep. Mike Thompson (D-St. Helena), whose district includes the torched wine country. “They don’t get the public attention there is in a natural disaster.”
But the president and GOP leaders need to eliminate enough tax breaks benefiting the rest of us so the government can afford to substantially lower levies on rich people and corporations. Still, the plan is projected to add about $1.5 trillion to the federal deficit over the next 10 years.
“It’s the height of hypocrisy…after spending eight years railing against the national debt,” U.S. Sen. Dianne Feinstein said of the GOP after the plan’s details finally were released Friday.
Many Californians will be hit hard from several directions in the tax overhaul. But the blows will be a bit softer than they would have been in original versions.
Itemizers will be allowed to deduct up to $10,000 in state income, sales and property taxes. Now there’s no cap on the amount. In 2015, around 6 million California taxpayers deducted an average of $18,400 in state income and local taxes, according to the Government Finance Officers Assn.
In my view, as I’ve previously written, there’d be nothing unfair about completely eliminating all state and local tax deductions. There’s no honest justification for the federal government, in effect, subsidizing California’s highest-in-the-nation state income tax or any local levy.
But severely reducing the allowable deduction will sting financially.
Homebuyers will be permitted to deduct interest on new mortgages of up to $750,000. The mortgage cap currently is $1.1 million. So many future homebuyers will be hurt. In some California regions, especially the Bay Area, median prices easily exceed $750,000.
Gov. Jerry Brown has denounced the Republican plan, claiming that congressional leaders are “wielding their power like a bunch of Mafia thugs.”
That’s a bit hyperbolic. But his thought is on target. No public hearings have been held on the tax plan. It was written solely by Republicans behind closed doors with no Democrats allowed.
Tax rates are being lowered and standard deductions nearly doubled, however, so some non-itemizers may benefit.
Thompson led the fight defending the casualty loss deduction.
“In my district, for starters, probably 7,000 homes were burned down,” he says. “Add to that the folks with damage. It’s just cruel and stupid.”
It took a last-minute compromise tweak, the congressman says, to permit a casualty deduction if the president declares a national disaster. That’s only in cases of mass destruction.
There’s a Democratic theory that California and other deep-blue, high-tax states — like New York — are being gleefully targeted by Republicans who really love ending their federal tax subsidies. I buy that. But I mostly think the GOP is paying off political donors.
Trump and congressional leaders also are desperate to show they can accomplish something this year. Some accomplishment! Not even Ebenezer Scrooge would have dreamed up incinerating casualty deductions.
Follow @LATimesSkelton on Twitter