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Mayors say many American families would be hurt by GOP plan to kill state and local tax deduction

SANTA ANA, CA., OCTOBER 27, 2016: Tom Tait in the offices of Tait and Associates in Santa Ana, Calif
Anaheim Mayor Tom Tait in the offices of Tait & Associates in Santa Ana, the firm that he heads.
(Mark Boster / Los Angeles Times)

Tom Tait, the Republican mayor of Anaheim, isn’t happy about his party’s tax-overhaul efforts in Washington because the plan would eliminate a deduction for state and local taxes that helps many of his city’s residents.

In Anaheim’s 92806 ZIP Code, for example, the loss of the deduction would lead a family of four with about $52,000 in adjusted gross annual income to pay $2,950 more in taxes, Tait said Monday.

“When people are talking in Washington about tax relief, people [in Anaheim] are not expecting an increase and certainly not an increase of that amount,” he said. “That would have a terrible impact on our local economy.”

Tait was among a bipartisan group from the U.S. Conference of Mayors that released a study Monday from the Government Finance Officers Assn. showing that almost 30% of taxpayers would face higher taxes if the deduction is eliminated.

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The analysis found that 44 million taxpayers used the deduction in 2014, with the average filer saving $3,491. More than half of the total amount of the deduction went to taxpayers with adjusted gross incomes of less than $200,000 a year, it said.

The mayors group has joined with other governmental organizations, including the finance officers group, the National Governors Assn. and the National Assn. of Counties, in lobbying Congress to keep the deduction.

“We’re going to fight to make sure they don’t end it,” said New Orleans Mayor Mitch Landrieu, a Democrat, who is president of the U.S. Conference of Mayors.

Opponents have formed a coalition called Americans Against Double Taxation, arguing that the deduction prevents people from being taxed on money they pay for state and local taxes.

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“Over time, this double taxation is going to erode and weaken our local tax base,” Landrieu said.

The tax plan developed by the Trump administration and top congressional leaders would eliminate the ability of Americans to deduct what they pay in state and local taxes.

Backers of the plan, which is focused on a large cut to the rate paid by U.S. corporations, said the state and local tax deduction mostly helps the wealthy and that the middle class will come out better overall because of other proposed changes, including nearly doubling the standard deduction.

But the increase in the standard deduction won’t be a windfall for some Americans, and the overall impact of the plan won’t be clear until all the details of the plan, including income levels for new tax brackets, are released.

The state and local deduction allowed Californians to reduce their combined taxable income by $101 billion in 2014 — one fifth of the total value of the deduction nationwide, according to an analysis by the nonpartisan Tax Foundation.

Most of the states that would be hit hard by the loss of the deduction are Democratic strongholds, including New York and New Jersey.

But the loss of the deduction would affect people of both political parties, Tait said.

“Republicans and Democrats are not expecting an actual increase and that’s what would happen if it goes away,” Tait said of the deduction.

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The mayors group wrote to all members of Congress last month, urging them to keep the deduction, and some of the mayors met with Shahira Knight, Trump’s special assistant for tax and retirement policy.

Republican lawmakers from high-tax states are pushing to save the deduction by proposing new limits. One idea would limit the deduction to individuals with adjusted gross incomes of no more than $400,000 (or $800,000 for married couples).

Such a limit would preserve the deduction for all but the top 1% of earners — those with adjusted gross incomes above about $465,000 — according to an analysis by the Tax Foundation. But limiting and not scrapping the deduction would raise only about a quarter of the additional revenue that Republicans are looking for to offset their tax cuts.

The Tax Foundation estimated that a full repeal of the deduction would increase federal revenue by $1.8 trillion over the next decade. A $400,000 cap on the deduction would reduce those gains to $481 billion over the same period, it said.

Tom Cochran, executive director of the U.S. Conference of Mayors, said the group would not comment on “trial balloons.”

“We’re not interested in a compromise that’s not in the interest of middle-class taxpayers,” Cochran said.

jim.puzzanghera@latimes.com

Twitter: @JimPuzzanghera

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