Tom Reed: Compromise on state and local tax deduction gaining traction

A key House tax-writer on Tuesday said an emerging compromise to shield the state and local tax deduction from getting eliminated entirely appears to be “gaining traction,” as lawmakers prepare to release legislative text for their planned tax overhaul on Wednesday.

“It is very clear to me that the original proposal to eliminate, in its entirety, the state and local tax deduction is not going to occur,” Rep. Tom Reed said on a conference call with reporters.

Mr. Reed, New York Republican, said a compromise offered by Ways and Means Committee Chairman Kevin Brady to preserve the deductibility of local property taxes “appears to be gaining traction,” though he noted he would be open to different possible remedies.

Mr. Reed said New York’s nine GOP House members spoke by phone Monday evening with the White House to talk through the issue, which is particularly sensitive for members from blue, higher-tax states.

Mr. Reed is the lone Republican member of New York’s congressional delegation who also sits on the tax-writing Ways and Means panel.

House Majority Leader Kevin McCarthy, who was also on the call, said the entire country — not just high-tax states like New York and California — will be winners under the GOP’s plan.

Mr. McCarthy also said Mr. Brady has listened “diligently” to lawmakers from those states.

“I think there [will] be a little something in there to make sure those individuals are all taken care of,” said Mr. McCarthy, California Republican.

As part of the GOP tax overhaul, lawmakers had proposed axing the state and local deduction entirely, a move that could generate between $1 trillion and $2 trillion over 10 years that could pay for lowering other rates.

But Republican members from high-tax states like New York objected, saying the move could result in a tax hike on many of their constituents.

Amid those concerns, Mr. Brady said in recent days that lawmakers intend to preserve the deductibility of local property taxes. Right now, taxpayers can deduct those taxes, plus local income or sales taxes.

Senate Minority Leader Charles E. Schumer said Tuesday that the GOP’s stated plans to end the deductibility of state income taxes would still amount to a “double tax” on millions of Americans.

“If any American needed more proof this bill would be a boon for the wealthy at the expense of the middle class, they should look no further than this provision,” said Mr. Schumer, New York Democrat.

Seven of New York’s nine Republican House members voted against the Senate budget last week that included fast-track language for the tax package, citing the unresolved state and local issue as the big reason.

Mr. Reed and Rep. Chris Collins voted yes, saying they wanted to move the process forward on tax reform even though they had similar concerns about the deduction.

In a scathing letter to President Trump on Tuesday, New York Gov. Andrew Cuomo labeled Mr. Reed and Mr. Collins “the Benedict Arnolds of their time” for their votes.

“There is no middle ground here. Any of the proposed ’compromises’ will still destroy New York’s economy and harm the middle class,” Mr. Cuomo wrote.

“There can be no elimination, no ’compromise,’ and no cap on state and local tax deductibility.”