It’s an awkward pitch, and there’s a whole lot riding on it: Please vote to raise income taxes on your constituents. That’s what House Speaker Paul Ryan has to sell to 39 Republicans representing high-tax blue states, as the GOP’s tax bill heads to the House floor as soon as this week.
If he can’t convince them, the Tax Cuts and Jobs Act will not pass (Republicans only have a 22-vote majority) and Republicans will enter the midterms with no significant legislative accomplishments, despite having control of both chambers of Congress and the White House.
The problem is that both the House and Senate versions of the tax bill eliminate the deduction for state and local income taxes as a way of paying for the sharp cuts in the corporate tax rate, the scaling down of the estate tax, and overall income tax rate cuts. The Senate bill goes even further and removes the deduction on state property taxes, while the House version caps that deduction at $10,000.
The removal of those deductions — which could raise over $1 trillion in extra tax revenue over the next decade — disproportionately impacts Democratic states with high income and property taxes, like New York, California, New Jersey, Illinois, Minnesota, and Maryland. In all of those states, over a quarter of all tax filers take advantage of the state and local income tax deduction, according to 2015 tax filings compiled by Pew Charitable Trusts.
While there are no Republican senators from any of those states, there are 39 House Republicans who are. Even in the face of tremendous political pressure from donors, activists and Donald Trump to pass a tax bill, some Republicans from these states are already defecting from Trump’s signature legislative initiative.
Republican Reps. Peter King and Dan Donovan of New York, along with Darrell Issa of California, have already publicly come out against the bill as written, and many others have been circumspect or quiet about their position.
“Let’s stop pretending this tax proposal is good for everybody,” Donovan wrote in the New York Daily News on Nov. 9. “The middle-income people of New York, California, Illinois, and New Jersey are footing the bill for a tax break for people elsewhere.”
“These are hardworking people, and they’re going to get screwed by this bill,” King said on CNBC on Sunday.
Republican leaders in the House are clocking their votes with the aim of passing the bill by week’s end and sending it to the Senate. They seem confident it can pass with eliminating the state and local income tax deductions. “We’re pushing the bill as we have it,” Ryan told reporters Tuesday. Still, blue-state Republicans could single-handedly stop it in its tracks.
According to the self-imposed Senate rules, the bill cannot increase the deficit by more than $1.5 trillion over the next decade or else it will be subject to a filibuster by Democrats. So, Republicans have to find a way to accomplish at least some of the massive tax cut.
Ryan and other Republicans argue that much of the tax hike created by eliminating the deduction will be offset by the doubling of the standard deduction to $12,000 for individuals and $24,000 for couples. But the state and local income taxes for some of these states is so high that Ryan and Senate Majority Leader Mitch McConnell acknowledged this week that they couldn’t guarantee no middle-class family would see a tax increase.
This is a particular problem in middle- to upper middle-class suburbia in blue states where property and income taxes are high and the doubling of the standard deduction would not offset the elimination of the deduction. If Republicans manage to pass the bill anyway, it could further push Republicans in the suburbs to vote Democratic the next time around, a dynamic seen in last week’s elections across the country from Washington to Virginia.
California may be ground zero for this fight where Democrats are targeting 10 Republicans including Issa and six others who are running in seats that Hillary Clinton won last year. Four of the “California Seven,” as some Democratic politicos have started to refer to them, are in or around Orange County, which is as suburban as it gets.
The Democratic Congressional Committee (DCCC) has even opened its own office in Irvine for the 2018 midterms to have people on the ground at all times.
“Establishment California Republicans are championing a Tax Scam that will raise taxes on millions of middle-class families,” Drew Godinich, the DCCC’s regional press secretary in the West, who recently moved out to California, told VICE News.
“They will be absolutely be held accountable.”