Connecting state and local government leaders

Mayors Not Letting Up in Fight to Preserve the State and Local Tax Deduction

Canal Street in New Orleans

Canal Street in New Orleans Shutterstock

 

Connecting state and local government leaders

“We’ll see who’s got the numbers… Who’s got the votes,” according to Tom Cochran, CEO and executive director of the U.S. Conference of Mayors.

WASHINGTON — Mayors from around the U.S. are keeping up pressure on the White House and members of Congress as the city executives try to thwart proposals to eliminate a federal tax deduction for income households use to pay state and local taxes.

The deduction, commonly referred to as SALT, is an attractive target as congressional Republicans and the Trump administration push to overhaul the U.S. tax code. Eliminating it could raise, by some estimates, $1.3 trillion over a decade to help offset tax cuts for businesses and individuals that lawmakers and the president support.

But some local leaders say nixing SALT could make it harder for states and localities to raise their own taxes. And critics of eliminating the deduction argue that without it people would face double taxation, with income going toward state and local taxes taxed federally as well.

"We've come a long way in the last three weeks in expressing our opposition to repeal SALT,” New Orleans Mayor Mitch Landrieu, the current president of the U.S. Conference of Mayors, said Monday during a call the conference held with reporters.

“We're going to oppose any package that includes it,” he added.

Last week, The Wall Street Journal reported that House Republicans were weighing a partial repeal, possibly setting a cap for the deduction that would block higher income households from claiming it. Asked Monday if the conference of mayors could get behind this idea, Mayor Steve Benjamin, of Columbia, South Carolina, said "we're not going to comment on trial balloons."

He added: "We're not interested in this discussion around a compromise until we're convinced that middle class families are going to be protected."

A report from earlier this year that was prepared by the Government Finance Officers Association indicates that nearly half the total amount of the SALT deduction goes to taxpayers earning over $200,000 annually. Median household income in the U.S. last year was $59,039.

The U.S. Conference of Mayors was among a number of groups that met with Trump administration officials last week, including Shahira Knight, a staff member on the National Economic Council who oversees tax and retirement policy issues.

“We stressed to them that we were disappointed that they have put us on the table to pay for this tax reform,” said Tom Cochran, CEO and executive director of the conference.

“It was a good meeting, but we just wanted to let them know that we are going to get suited-up and do our thing with Congress,” he added. “We were very firm about it.”

Groups representing governors, county governments, city council members, school superintendents, firefighters and realtors also attended the meeting with Knight, to stake out support for the state and local tax deduction, according to Cochran.

House Speaker Paul Ryan, when asked about the deduction last Thursday at a Heritage Foundation event, reiterated his skepticism of the tax break and also seemed to acknowledge the extent to which it presents a hurdle for the GOP’s tax plan.

“This is why this hasn’t been done since 1986,” he said, referring to revamping the tax code.

“It’s really the general interest is going to have to trump over the special interest,” Ryan added.

“Things like state and local deduction, which I would argue were propping up profligate big government states and were having states that actually got their act together pay for states that didn’t…These are the issues that we have to help members see the big picture.”

Elected officials in some places where higher percentages of taxpayers are claiming the SALT deduction are quick to note that their states also funnel more money into the federal coffers than their peers.

“California is a major donor state,” said Mayor Tom Tait, of Anaheim, California.

“We pay more to the federal government than we receive,” he added.

An analysis the Nelson A. Rockefeller Institute of Government released this month found that some states already contributing more to the federal budget than a typical state would pay disproportionately greater amounts in taxes if the state and local deduction is eliminated.

Among the states that fall into this category, according to the analysis, are California, Connecticut, Massachusetts, New Jersey and New York.

Discussion so far about the state and local tax deduction has focused at times on whether it mainly benefits wealthier, Democratic-leaning states, like New York and New Jersey. But the Conference of Mayors and other state and local groups dispute this characterization.

“There’s a thing going around that says this is a blue state, red state issue,” Cochran said. “It is not.” Mayors, according to Cochran, will continue to press members of Congress on the deduction this week. “We’ll see who’s got the numbers,” he said. “Who’s got the votes.”

Bill Lucia is a Senior Reporter for Government Executive’s Route Fifty and is based in Washington, D.C.

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