California's Brown Warns of `Rude Awakening' for GOP on Tax Bill
California's Brown Warns of `Rude Awakening' for GOP on Tax Bill
(Bloomberg) -- California Governor Jerry Brown has a warning for Republican lawmakers in Washington: The tax bill that’s under debate isn’t going to help them.
The GOP risks voter revolt at the ballot box in 2018 and 2020, losing the unified control it now enjoys in Washington, if the legislation passes, Brown said in an interview Friday at the governor’s mansion in Sacramento. The bill prioritizes the wealthy and corporations over ordinary working Americans, and will increase the national debt without commensurate stimulus to economic growth, he said.
“Who’s to say that the rich need more money right now?” said Brown, a Democrat whose career in politics spans almost five decades. “If you give them more money, what are they going to do with it? Are they going to put it to work in Michigan and Ohio and Pennsylvania, all the people that voted for Trump? I think there’s going to be a rude awakening when people wake up and say they were misled.”
House Republicans last week passed their version of legislation to overhaul the U.S. tax code by slashing the corporate tax rate and lowering tax burdens for many individuals, a plan that would add an estimated $1.4 trillion to the federal deficit over the next decade. The vote was a crucial step for GOP leaders aiming to score their first legislative victory after almost a year of unified government control. They argue voters will reward them if they secure a tax revamp. In Congressional elections next year, 33 Senate seats and all 435 House seats will be on the ballot.
California’s Hit
Studies have shown that many of the tax bill’s benefits would go to the highest earners, and some middle-class taxpayers might actually pay more. Residents of Democratic states like California, who pay high state and local income taxes, would be hurt most by provisions in the bill that eliminate their ability to deduct such levies when calculating what they owe in federal income tax.
Under the House bill, mortgage interest would be deductible on loans up to $500,000 for newly purchased homes instead of the current $1 million for couples filing jointly. That may hurt values in California, where the median price for a single-family house was $553,490 in September, more than double the national level, according to the state’s Realtors association. The Senate plan preserves the current mortgage-interest cap.
Asked whether he thought the plan intentionally took aim at California, which has been a hotbed of resistance to Trump and Republicans in Congress, Brown said, “I’m sure that was on the minds of some people.”
It’s too early to know the full extent of the tax plan’s damage, said Brown, 79. Yet as the country’s most populous state and largest economy, “California is one of the major contributors to the wealth of America. So when you step on California, you’re stepping on America,” he said.
While three Republicans from California voted against the House plan, 11 supported it. Brown called this “a form of declaring war on their fellow neighbors and citizens.”
Brown’s comments came days after he returned from the United Nations Conference on climate change in Bonn, Germany. The governor has embraced the role of counterweight on the world stage to climate skeptics in Washington who have sought to limit environmental protections.
Senate Debate
The GOP’s far-reaching tax quest to fundamentally reshape aspects of the U.S. economy is far from guaranteed. The Senate is debating its own separate plan, and it isn’t yet clear there will be enough votes to pass it. Republicans control only 52 of the chamber’s 100 seats and must produce legislation that meets far stricter fiscal constraints.
Backers of the House version say its cuts would spur enough economic growth to offset the measure’s $1.4 trillion cost, as estimated by Congress’s Joint Committee on Taxation. (The JCT hasn’t yet released cost estimates that would account for macroeconomic changes.) Brown called the economic theory underpinning that assumption, which doubles as the “pillar” of the Republican Party, “total mythology.” Instead, he said, the bill will "exacerbate inequality and, perhaps as bad, it will increase our national debt.”
Brown, who has just over a year remaining in his fourth and final term as governor, said the tax plan won’t soothe the economic anxiety felt by so many low- and middle-income Americans that propelled Trump to the White House. As a result, they’ll blame the party in power.
“I don’t think you can tweet your way to success and pay off the very powerful and not take care of the struggling people,” he said. “There will be buyer’s remorse.”
--With assistance from Anna Edgerton and Jeffrey Taylor
To contact the reporter on this story: Esmé E. Deprez in Santa Barbara at edeprez@bloomberg.net.
To contact the editors responsible for this story: Jeffrey Taylor at jtaylor48@bloomberg.net, Kara Wetzel
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