Thu | Jul 19, 2018

Democrats seek to help wealthy in response to tax changes

Published:Monday | March 5, 2018 | 12:00 AM
Unitedv States President Donald Trump

CHERRY HILL, New Jersey (AP):

Resistance to the Republican tax overhaul comes with an ideological twist for some Democratic state officials: They've styled themselves as champions of the working class but are pushing hard for measures that would reduce taxes, mostly for the wealthy.

Democratic governors and lawmakers in a handful of high-income, high-tax states are promoting policies that are intended to spare their residents the pain of the new US$10,000 cap on deductions for state and local taxes. Connecticut, New Jersey and New York are even planning to sue the federal government over the new cap, which was a key provision of the Republican tax overhaul adopted in December.

The legislative workarounds have moved swiftly through state Senate chambers in California and New Jersey. A bill with similar components passed the Oregon Senate and House in the last two weeks. The concept is under consideration in Connecticut, Maryland, New York, Rhode Island and the District of Columbia.

Proponents say the cap on state and local tax deductions disproportionately affects states controlled by Democrats and raises the cost of living. They say that has the potential to drive well-off residents to other states.

California state Senate President Pro Tem Kevin de Leon, a Democrat sponsoring the bill there, said the state budget would take a big hit if wealthier residents flee California because they pay the bulk of the taxes.

"We have to offer services like schools, like healthcare, like resources for senior citizens who have Alzheimer's," he said.

John Moorlach, a Republican state senator, finds irony in the Democrats' efforts.

'WELCOME ABOARD'

Last year, a Democratic colleague sarcastically thanked him for taking a stance that would protect yacht owners. This year, Moorlach had a retort: "It's rich that you guys are trying to help the wealthy now in California," he said at a January committee meeting. "So welcome aboard."

De Leon, who is running for the US Senate, said it's the first time he's ever been criticised for helping the wealthy.

Republican critics say the states should be reassessing their taxes instead of trying to circumvent the new tax law.

"What's worse?" asked New Jersey state Senator Joe Pennacchio, a Republican who voted against the work-around measure there. "Not being able to take the tax deduction or having high taxes to begin with?"

Under the deductions, known as SALT - for state and local taxes - money paid to state and local governments is not counted as taxable income by the federal government in many cases. The higher a taxpayer's state and local taxes, the bigger the benefit the federal deduction can be.

The new law caps the deduction while also lowering tax rates. Overall, it's expected to result in reduced tax bills for most Americans, with the biggest savings going to high earners.

But in California, New Jersey and New York, a much larger share of the top one per cent of earners - 24 to 43 per cent of them - actually would see their federal taxes rise under the GOP tax law, according to an analysis from the nonpartisan Tax Policy Center. That is largely because they would lose most of the benefit of the SALT deduction.