Removing state and local tax deduction: A left jab at liberals?

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Many Californians face a big financial hit under the Republican tax plan, which would eliminate a major tax break that benefits state residents more than those anywhere else in the U.S.

The federal deduction for state and local taxes allowed Californians to reduce their taxable income by $101 billion in 2014, according to an analysis by the nonpartisan Tax Foundation.

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“Republicans in Washington have once again zeroed in on California to punish us and make our state the single biggest loser in their reckless tax scheme,” said Senate President Pro Tem Kevin de León (D-Los Angeles).

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Sen. Dianne Feinstein (D-Calif.) said the elimination of the deduction was one reason the plan was a “non-starter” for her.

“I don’t believe California should suffer in order for President Trump to give tax cuts to the rich,” she said.

The plan also left open the possibility of another big hit: new limits on the deduction for home mortgage interest, which would have a greater effect on states with higher housing costs, such as California and New York.

Homeowners now can deduct interest paid on as much as $1 million in mortgage debt. Some Republicans have been considering reducing the limit to $500,000. If that were to happen, about 489,000 filers in California would see an average increase of about $3,290 in their federal taxes, according to an analysis by the nonpartisan Tax Policy Center.

Trump pitches tax plan as 'once-in-a-generation opportunity,' but leaves many issues unresolved
The Republican tax outline would slash business tax rates, nearly double the standard deduction for individuals and married taxpayers filing jointly, and compress the current seven tax brackets to three. But the plan still lacks many crucial details.

That made it difficult to analyze the effect on the nation, let alone specific states, experts said. The plan, for example, doesn’t specify the income levels of the new tax brackets. Those details and others — such as whether to limit the mortgage interest deduction — are being left to members of Congress to figure out.

“It’s a slapdash wish list that does not deserve the dignity of the word ‘plan,’ ” said Edward Kleinbard, a USC professor and former chief of staff to Congress’ Joint Committee on Taxation.

“We don’t know what the effect will be on lower-income Americans vs. middle-income Americans vs. higher-income Americans except that we know that the highest-income Americans come out way ahead,” he said. “That’s the only thing we know for sure.”

The proposed reduction of the top marginal tax rate to 35% from 39.6%, along with the elimination of the estate tax and the alternative minimum tax, would help California’s wealthiest residents, analysts said.

And the huge reduction in the corporate tax rate, to 20% from 35%, would be a boon to major California companies such as Apple Inc., Chevron Corp., Wells Fargo, Alphabet and Disney. The state is home to 53 Fortune 500 companies, second only to New York’s 54.

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