Schumer Remarks on State and Local Tax Deductions In GOP Tax PlanOctober 5, 2017
Washington, D.C. – U.S. Senator Chuck Schumer today delivered remarks during a press conference regarding the state and local tax deductions in the GOP tax plan:
Okay, good afternoon everybody. And as you know I’ve been focused on tax reform for the last few weeks. And today, I want to talk about something that I think is the Achilles heel – one of them – but the first to be prominent, of the Republican tax plan. And that is the repeal of state and local deducibility.
First, I’d like to show you how widespread it is and how deep it is, how it doesn’t just affect four states. And second, I would like to show you why the proposals the Republicans are now making – the Republicans know that they are in trouble with state and local tax deductibility. So they’re trying to make some compromises. The two they have proposed both won’t work. So they ought to give it up and end this idea that they are going to end state and local deductibility.
So let me go over it. First, there are 44 million taxpayers who take the state and local deduction - that’s not a small number, that’s a third of all taxpayers – because we are talking about taxpayers, in other words a family of four that submits one tax return is a taxpayer. 44 million out of about 120-130 million total taxpayers. So a third of Americans are affected.
And the amount of money they get is large, thousands and thousands of dollars a year. Almost no place is it less than $5,000. And finally the myth: this just affects California, New York, New Jersey, Massachusetts. It affects every state in the country in a very significant way.
So the bottom line is simple. Every state is affected, large numbers of people are affected in every state, and they are affected in a very deep way. They’re taxes will go up significantly.
So here are some numbers, and these come from the IRS’s numbers. Now this is…let’s see which one we have first. I mean there’s California, which everybody points to, and 34% of the taxpayers are affected. But about the same percentage of taxpayers are affected in Georgia. A third of all the taxpayers in Georgia take advantage of state and local deductibility.
Colorado, 32%. Let’s look at…these are the highest states. But if you look at the highest states, guess who’s here? Orrin Hatch, Chairman of the Finance Committee, 35% of his taxpayers are affected – more than a third – and they get one of the highest rates of deduction, $12,954. That’s thousands and thousands of dollars for more than a third of all Utahans. In fact, the percentage in Utah and the percentage in New York are the same.
Now let’s look at this one. Iowa, 29%, $10,000. You’re going to go home, Mr. Iowa Congressman, or Mrs. Iowa Senator, and tell a third of your taxpayers they are going to lose a $10,000 deduction? Hawaii. North Carolina, big Republican state, 29%. Look at Idaho. 28% at $8,800.
Now you say “well they’re going to double the standard deduction.” Yea, they are. But if you have a family of three, the standard deduction is wiped out because you lose the personal exemption. That’s $4,000. So, 4000 times three is 12000. Doubling the standard deduction is 12,500. If you have a family of four, you not only lose the state and local deduction but you lose in terms of the standard deduction because the personal exemption is gone.
So look at this, this is incredible. Now here are the lowest states. Kansas, 25. Kentucky, Mitch McConnell’s state, 26. The lowest states, the ones who have the least effect, have far more effect than anyone ever imagined. South Dakota and West Virginia, 17% of the taxpayers. 17%. $9,000 of deductions lost in West Virginia, $6,000 from South Dakota.
So the bottom line is this is deep and wide. The effect of removing the state and local deductibility is deep and wide. And I think it alone is going to kill the Republican plan as it is. And by the way these are states… do you know how this affects Congress members? Particularly in the more affluent districts that are represented by Republicans? It’s huge. And we can give you the list of the 100 districts most affected. And those congressmen are not going to want to vote for this bill.
So aside from the fact that it cuts Medicare and Medicaid. Aside from the fact that it favors the wealthy. And let me just say this. I was involved in tax reform in 1986. The biggest problem for those who wanted to do reform, for Mr.’s Bradley and Gephardt, was state and local deductibility. They had to remove it before they could move forward on the bill. The same thing is going to happen here. And when the Republicans remove it, they have a $1.3 trillion hole to fill. Because it’s going to increase the deficit by another 1.3 trillion.
And by the way, one other thing before I get to the second point. When they said it was $1.3 trillion, how could it just be four states? It’s a huge number, it had to affect all of America. And it does.
So now they have been worried. And it’s been reported that Thursday night, Gary Cohn had dinner with a number of Republicans from these districts that are affected and proposed two solutions. The solutions they proposed are half-baked and won’t work. They proposed two.
One, you get a choice of the mortgage deduction or the state and local deduction. If you have to choose, your taxes are going to go up, because if you don’t itemize you’re using both. What kind of choice is that? And furthermore, they’re sort of saying when they say choose between getting rid of the mortgage deduction or state and local, which of your hands would you like us to chop off? Left or right? That’s the great solution.
But the second one they say is “oh this goes for rich people.” Well this doesn’t go to rich people. Capital gains, lowering the top rate, excise tax: those affect rich people. Rich people don’t have that much of their income in property. They have it in liquid assets.
So listen to this. Let’s say they limited it to just people with incomes below $200,000 a year – and they won’t go that low – that’s 50% of the value. They’re huge numbers of taxpayers that make between $50,000 and $250,000 who are affected by this. That’s where the money is. They’re not going to say if you make $175,000 you don’t have to pay this. That’s their base constituency.
So to actually have an effect, to prevent it from building a hole in the deficit, you have to go very deep into the middle class and upper-middle class. Not going to happen. So both solutions are rotten.
The only question I have is: how could they have been so dumb to put this in to begin with? It’s so obvious what the problem is, and within the first week it’s bubbling. And the only answer I have is this bill was not written by average Republican Congressmen and Senators. It was written by the hard-right. And the hard-right’s little tool, the Freedom Caucus said we won’t go for a bill unless the hard-right, Koch Brothers, groups like that, Americans for Prosperity - what’s Grover Norquist’s group? Citizens for Tax Reform – approve it. And those guys ideologically don’t like states to charge more.
By the way, this idea that Alabama is subsidizing New York – New York puts far more money into the federal government than Alabama. We’re a donor state, they’re a done state, so that’s bunk too.
So, my plea to my Republican colleagues: we want to work with you on tax reform on a rational bill that helps the middle class, doesn’t give tax breaks for the wealthy, and doesn’t blow a hole in our deficit. Get rid of the idea of eliminating the state and local deductibility. You will never move a bill given how many taxpayers it affects throughout the nation.
I’m ready for your questions, first on this subject and then on others.
Forcing taxpayers to choose between the state and local deduction or the mortgage interest deduction would only benefit the very wealthy.
The Big 6’s doubled standard deduction and child tax credits provide less of a tax benefit than the combined itemized deductions and exclusions that many middle class families are receiving now, which is why these families taxes are poised to go up under this plan. For most middle-class taxpayers, it is only the combination of their itemized deductions: the state and local deduction, the mortgage interest deduction and other miscellaneous deductions (charitable, etc.) that would make it worth it for them to itemize, otherwise they would choose the doubled standard deduction.
As you can see, if this family under the Big 6 plan had to choose between the mortgage interest and state and local deduction, they would find that it would make more sense not to itemize and take the standard deduction, but their taxes would go up almost $600.
Chart from Business Insider.
State by state figures on SALT deduction can be found here.