As U.S. Treasury Secretary Steven T. Mnuchin pitched the GOP tax reform plan Monday in Orange County — an area where many residents would be hit hard by proposed eliminations and limits in deductions — he pledged that only California millionaires would see their personal taxes increase under the plan.
Accompanied by Ivanka Trump, Mnuchin tried to make the administration’s case in a county that is home to four vulnerable GOP members of Congress whose votes will be critical in the passage of the legislation. The members face competing pressures — a desire for a major legislative accomplishment going into the midterm elections versus enacting a tax proposal that disproportionately harms their constituents in a high-tax state with expensive housing.
Mnuchin acknowledged the quandary.
“We spent a lot of time on New York, New Jersey, California and some others, making sure we understand the impact,” Mnuchin said at a gathering of the Lincoln Club of Orange County at a wealth management firm in Newport Beach. “And as I said, we’re sympathetic. We designed the plan so someone who makes $200,000 or $300,000 will get a tax cut. Someone who makes $1 million is going to see their taxes go up.”
But he noted that high-income earners will benefit from other provisions in the plan, such as the elimination of the estate tax.
“This is trying to be balanced, but we do understand the issues here in California,” Mnuchin said.
The centerpiece of the GOP tax plan — the reduction of corporate tax rates from 35% to 20% — has broad support among Republicans, as do other proposals that proponents argue would make American companies more competitive.
But parts of the proposal will disproportionately affect high-tax states where housing is expensive, such as California. It would eliminate the deduction for state and local income and sales taxes, limits the property tax deduction to $10,000 and caps the mortgage interest deduction to loans up to $500,000, rather than the current $1 million.
David L. Bahnsen, the founder of the wealth management group where Mnuchin and Trump appeared, spoke out after the meeting to voice his concerns with the proposal.
“Essentially, Republicans are going to have to pick between passing a bill that raises taxes on their constituents and denying the president his desperately needed legislative victory. How did this happen?” he wrote in the National Review.
Republican members of Congress from New York and New Jersey similarly came out in opposition to the bill last week. GOP lawmakers from California have not rejected the bill, though a few including Rep. Steve Knight of Palmdale have expressed concern about how it will affect their constituents.
House leaders hope to pass a bill by Thanksgiving, and the importance of the GOP votes from California to the bill’s success was underscored by the location of Monday’s event. Orange County is home to four GOP-represented congressional districts that Hillary Clinton won in the 2016 presidential campaign. They are all being targeted by Democrats as part of their effort to retake the House of Representatives.
Rep. Dana Rohrabacher (R-Costa Mesa), who represents Newport Beach, told The Times last week that he would make his decision based on the overall impact of the legislation on his constituents, not the elimination of one deduction.
Four housing markets in California — Los Angeles/Orange counties, San Diego, San Francisco and San Jose — have median home prices above $500,000 and are among the most expensive places to buy a home in the country, according to Zillow. In Orange County, where the event took place, the median price is nearly $700,000.
“We’re not in Kansas, and California taxpayers … are hoping that [the tax reform package] will lift us up and support us, but at the very least we’re looking for it to not do any harm,” Carolyn Cavecche, president of the Orange County Taxpayers Assn., told Mnuchin and Trump. “For taxpayers here in Orange County and California, the devil’s going to be in the details.”
Trump asked attendees to urge their representatives to support the bill.