Trump Backs Keeping State Income Tax Break With Cap, Cohn Says

(Bloomberg) -- The White House supports tweaking final tax legislation to appease lawmakers who want to let constituents deduct state income taxes, according to National Economic Council Director Gary Cohn.

His comments marked the first time the White House has publicly weighed in on a potential compromise for state and local tax deductions that emerged this week. But Cohn declined to say whether the White House supports setting the corporate income tax rate above 20 percent to help pay for the revenue cost of that change -- which would probably be in the neighborhood of $100 billion over 10 years, based on an independent estimate.

The White House has sent mixed signals on where the corporate tax rate should be set. After insisting it should be cut to 20 percent from 35 percent, President Donald Trump said last weekend that it might be 22 percent.

On Friday, 26 conservative groups -- including the National Taxpayers Union and the Tea Party Patriots Citizens Fund -- sent a letter to House and Senate members who are working on the final legislation, urging them to stick with a 20 percent corporate rate. Lawmakers are trying to meld the differing tax bills that each chamber has passed.

Republican tax writers’ plans for state and local tax deductions have been another source of controversy. Current House and Senate bills would preserve an individual deduction for state and local property taxes -- capped at $10,000 -- but not for income taxes.

“No one really wants tax increases here,” Cohn said Friday during a Bloomberg Television interview. “The White House is fine with that if that’s where the conferees go and the conference committee goes.”

This week, a potential compromise emerged: letting taxpayers deduct state income taxes in addition to property levies -- up to the $10,000 cap. Senate Majority Leader Mitch McConnell said he’s open to the change, as have House Republican leaders including Ways and Means Chairman Kevin Brady.

“We are very concerned” about the 70 House lawmakers from high-tax states who want to ease the burden on their constituents if state and local tax deductions are repealed, Cohn said.

Marc Short, the White House director of legislative affairs, said the change for state and local tax deductions is “certainly being discussed.” But he said “the biggest challenge is the pay-fors” -- that is, how to cover the revenue that would be lost by offering a larger deduction.

During an interview, Short said he believed the additional cost for expanding the deduction would be roughly $90 billion -- though he said he wasn’t sure of the figure. Scott Greenberg, an expert with the conservative Tax Foundation, said that independent policy group estimates the cost of making that change to the Senate bill at $148 billion.

But Greenberg said the official congressional scorekeeper, the Joint Committee on Taxation, would probably find a lower value -- close to the number Short cited.

Corporate Rate

Setting the corporate tax rate at 22 percent would boost revenue by far more than that, said Mark Mazur, director of the Urban-Brookings Tax Policy Center, an independent policy group.

Some estimates have suggested that adjusting the rate upward by two percentage points could raise as much as $200 billion in revenue over a decade -- but Mazur said that’s a conservative figure. It could be as much as $400 billion, he said.

When asked whether the 20 percent corporate rate is still a red line for the president, Cohn didn’t respond in the affirmative. Instead, he said: “The president talked about 20 percent, both bills have 20 percent in them, that’s where we are.”

By Monday, Cohn added, “we’ll have a pretty final tax bill here, and we’ll know where we’re going to be.”

Short predicted that two GOP senators who have cited specific concerns about the legislation -- Marco Rubio of Florida and Susan Collins of Maine are “going to be fine” in the end.

Rubio said in a Twitter message Friday that if the final legislation weakens the child tax credit -- or makes a shallower corporate rate cut, but doesn’t use the resulting revenue to finance an expansion of the child tax credit -- there are “going to be problems.”

Collins has said she wants to see separate legislation passed to shore up health-insurance marketplaces if the ultimate tax bill repeals the individual mandate that’s part of Obamacare. The measures will almost surely face rough sledding in the House, however.

On Thursday, the White House didn’t commit to supporting the health-care bills Collins wants. Short said Friday that “if those reach the president’s desk he will sign them, but there’s some elements of that as far as the lobbying and whipping of votes that is out of our control.”

--With assistance from Alexis Leondis Saleha Mohsin and Sahil Kapur

To contact the reporters on this story: Toluse Olorunnipa in Washington at tolorunnipa@bloomberg.net, Jonathan Ferro in London at jferro10@bloomberg.net.

To contact the editors responsible for this story: John Voskuhl at jvoskuhl@bloomberg.net, Justin Blum

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