State, Local Break Remains Sticking Point in House Tax Push

(Bloomberg) -- Just after the House narrowly passed a budget resolution to kick off a fast-paced debate on overhauling the U.S. tax code, the first obstacle reappeared: whether or how to limit a federal tax break that benefits high-tax states including New York and New Jersey.

“This isn’t over,” said Representative Tom MacArthur, a New Jersey Republican who joined 19 other GOP House members in voting against the budget. “I’m confident we can come to a deal.”

But there was no immediate movement on the state and local tax deduction, which is known as the SALT break. It allows federal taxpayers to deduct the cost of their state and local taxes from their taxable income -- and it tends to benefit people from high-tax states. Repealing the break, as President Donald Trump and congressional leaders have proposed, would generate an estimated $1.3 trillion over 10 years -- revenue that would help offset the steep rate cuts the GOP has promised.

In a meeting called soon after the budget vote, House Majority Whip Steve Scalise and Ways and Means Chairman Kevin Brady assured concerned members that they’re running numbers on the issue and pledged to resolve it, but they offered no new proposal. “They asked for patience,” said Representative Dan Donovan, of New York. He said he was pleased with the commitment.

Immediately after the vote, Representative Peter King, a New York Republican who voted against the budget resolution, said he has “seen no evidence of good faith” from House leaders on reaching a compromise -- and said he has little confidence the SALT issue can be resolved in a way that would earn his vote on a forthcoming tax bill. King said he doesn’t see a strong prospect for final action on a tax plan this year.

Brady said after the budget vote that he will introduce the tax bill Nov. 1 and his committee will begin considering it on Nov. 6.

Senate Minority Leader Charles Schumer of New York blasted House support of the budget measure as a vote to eliminate SALT. He said during a speech on the Senate floor Thursday before the House completed its vote that the middle class will “get clobbered” with the loss of the deduction.

©2017 Bloomberg L.P.