Van Hollen fights to preserve state and local tax deductions

WASHINGTON (AP) - As Congress tries to overhaul the nation’s tax laws, some Republicans want to reduce or eliminate state and local tax deductions.

But Sen. Chris Van Hollen, D-Maryland, said doing so would only hurt the middle class, including in his state, so he has been pressing to keep the deductions intact.

Maryland has the highest percentage of taxpayers in the country who use the deductions - about 45 percent. Without the deduction in 2015, those taxpayers would have paid an estimated additional $3 billion in federal taxes, according to the Maryland Department of Legislative Services.

“Almost half of all MDers use the state and local tax deduction - nearly 1.3M in 2015. This will (increase) taxes for millions of working families,” Van Hollen tweeted on Oct. 19.

Van Hollen has said that the Republicans’ attempts to eliminate tax deductions is an effort to help pay for tax cuts for corporations and the wealthy and would lead to double taxation.

Last week, Van Hollen and Sen. Maria Cantwell, D-Washington, tried to introduce an amendment that would have prevented the Senate from considering any actions that would eliminate or limit the state and local tax deduction. Although the senators were unsuccessful, Van Hollen said that the fight wasn’t over.

The senators have allies.

“Eliminating or capping federal deductibility for the state and local property, sales and income taxes would represent double taxation on local residents, as these taxes are mandatory payment for all taxpayers,” the Americans Against Double Taxation Coalition wrote in a letter to the House Ways and Means Committee and the Senate Finance Committee.”Elimination would effectively increase marginal tax rates for certain taxpayers, shrink disposable income and harm housing markets, damaging the U.S. and local economies.”

Economist Phillip Swagel, a professor in international economic policy at the University of Maryland’s School of Public Policy, said Maryland taxpayers shouldn’t panic yet.

Swagel, who served as assistant secretary for economic policy at the Treasury Department during the last couple of years of the George W. Bush administration, said that it’s misleading to only look at the state and local deduction (known as SALT) without considering the other parts of the GOP tax plan.

“They are looking at the SALT deduction in isolation and ignoring the accompanying increased standard deduction, which ameliorates for most non-high-income families,” Swagel said.

Swagel said that the value of deducting state and local taxes is lower for families with average or lower income. Each dollar of that deduction is more valuable in higher income brackets, he said.

The deductions do benefit some middle class families in the state, but the extent of the benefit may not be as drastic as Van Hollen is making it out to be, Swagel said.

But some Republicans representing states with high taxes are signaling their discomfort over eliminating the state and local tax deduction, according to news reports. Those lawmakers have said they may not back a House budget resolution if the tax plan includes ending that deduction.