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Trump v. California

In this corner: Economy

For basic background, start with The Weigh-in: The Economy.

Dollars from Feds
All talk, no action—yet
It's on!
On the ropes
California wins!
Trump wins!

State Senate President Pro Tem Kevin de León is proposing an end run for Californians to deduct the full value of their state and local taxes from their federal tax bills.

De León, a Los Angeles Democrat who is running for U.S. Senate, introduced SB 227, which would allow taxpayers to make charitable deductions to the state and receive a dollar-for-dollar tax credit on the full amount of their contribution.

Because charitable contributions are fully deductible, this would allow California taxpayers to sidestep the new $10,000 federal cap on state and local tax deductions.

“The Republican tax plan gives corporations and hedge-fund managers a trillion-dollar tax cut and expects California taxpayers to foot the bill,” de León said in announcing his legislation. “We won’t allow California residents to be the casualty of this disastrous tax scheme.” He noted that the bill is modeled after existing laws that provide tax credits on charitable donations made to state college affordability grants, such as the Cal Grant program.

His Republican counterparts are instead calling for a lowering California’s personal income tax rates.

Vince Fong on Twitter

Announcing my state tax cut proposal for CA middle class families and small businesses! This lowers the state’s tax burden without gimmicks.


With hours left before the House and Senate are expected to vote on a $1.5 trillion tax overhaul, Gov. Jerry Brown is rallying Californians to call on their Republican representatives to vote No on a “tax monstrosity.”

The Democratic governor posted a 1-minute message on Monday morning saying the plan will increase the national debt and gives tax breaks to corporations on the backs of states such as California that voted against President Trump. Statewide, Democratic candidate Hillary Clinton received more than 4.2 million votes than Trump—a nearly two to one margin.

Here’s the full transcript:

Hi, I’m Governor Jerry Brown.

My message is real simple: The current tax bill in Congress is bad – it’s bad for you and it’s bad for America.

It’s never good to have one party vote one way and the other party vote 100 percent the other way – that’s dividing America at a time when we need unity.

Secondly, it’s going to increase our national debt by more than a trillion dollars. We’re going to have to pay for that for decades to come. It’s not economically healthy, it doesn’t make America strong.

You know what it really does, it gives massive tax breaks to corporations that are flush with billions and billions of dollars.And who’s going to pay for that? People who live in states that voted against Donald Trump. That’s not fair. That’s not treating America as one nation, indivisible, with liberty for all of us.

So please, call your Republican representative and tell them: “Vote no on this tax monstrosity.”

Jerry Brown on Twitter

Call your GOP representative and tell them: Vote NO on this tax monstrosity. #GOPTaxScam

House Majority Leader Kevin McCarthy of Bakersfield announced last week that members of Congress have agreed to a tax plan that will “deliver higher wages, lower taxes, a simpler system, and a stronger American economy” to President Trump by Christmas.

But the plan does hit wealthy, high-tax states such as California where many middle-class families face high housing costs and rely on deducting high amounts from their state and local taxes. Despite initial plans to eliminate the State And Local Tax (SALT) deduction, the final proposal imposes a $10,000 limit on any combination of state and local taxes, including income, property and sales taxes, that can be deducted by a household.

An analysis by the progressive D.C.-think tank Center on Budget and Policy Priorities found the change would still impact more than 2 million high-earning households in California. That’s because the average deduction for state and local income taxes alone is nearly $16,000 per return.

Republicans are also lowering the deductible amount of interest paid on mortgage debt to $750,000, which the Brown administration has warned will make it harder to own a home in California. The limit under current law is $1 million.

California city officials have already criticized the bill, saying fewer deductions may force cities to cut back on police, fire, road repairs and other local public services.

“By limiting SALT, taxpayers will be faced with double taxation on hard earned incomes and cities may be forced to reduce services due to cut backs in resources,” said Carolyn Coleman, executive director of the League of California Cities. “With many California cities and residents yet to fully recover from the Great Recession, we’re disappointed that the conferees did not preserve the full SALT deduction.”

So far, only one of California’s 14 GOP House members says he’s voting against the bill because many of his constituents in the coastal communities north of San Diego will face higher tax bills under the plan. Rep. Darrell Issa, R-Vista, facing a tough re-election bid, instead took a swipe at state Democrats for “the tax factory in our State Capitol.”

Darrell Issa on Twitter

I will be voting “no” on the final tax plan. The bill agreed to in conference makes some improvements, but the changes do not go far enough to guarantee tax relief for constituents in my district.


Gov. Jerry Brown’s chief fiscal advisor says the Republican tax plan will raise the cost of homeownership by scaling back the mortgage interest deduction, making it harder to buy property in pricey California.

Finance Director Michael Cohen sent a letter this morning to members of California’s congressional delegation with a long list of concerns under the versions being considered by a conference committee. At the same time, House and Senate GOP leaders announced they had reached an agreement expanding tax cuts for the wealthy, but few details were immediately released.

"Painted Lady" Victorians in San Francisco. Photo via Wikimedia

“Painted Lady” Victorians in San Francisco. Photo via Wikimedia

A vote is expected next week. Republicans control 52 seats in the Senate but only need 50 votes to pass their plan since Vice President Mike Pence could break a tie. Their advantage will shrink by one seat once newly elected Democrat Doug Jones is sworn as a senator from Alabama.

The House bill would reduce the amount a homeowner can deduct to the first $500,000 of a new mortgage, while the Senate bill would keep the current $1 million limit. It’s been reported that negotiators have split the difference at $750,000.

“Given the high cost of housing in the state, mortgages for many mid-level homes are significantly above this cap,” Cohen wrote—noting that more than 4 million California tax returns claim the mortgage interest deduction at an average of over $12,000.

This was Cohen’s second letter to congressional delegates. As with the first, he expressed concerns about deficit-financed tax cuts at a time when the economy is at full employment and corporate profits are at all-time highs. He warned again how removing the state and local tax deduction while capping property tax deductions hurts a low-property-tax and high-income-tax state such as California.

Starting in 2018, the GOP plan would take away a deduction for personal loss, such as those experienced by victims of California’s wildfires. And it would make college less affordable by eliminating the deduction for student loan debt and and imposing a new tax on tuition waivers.


California taxpayers could see as much as a 22-percent increase in personal income taxes.

Eliminating the state and local tax deduction forces Californians to pay taxes on taxes they have already paid.

And capping property-tax deductions effectively raises the property tax for California homeowners, while reducing the mortgage deduction will make it harder for middle-class families to buy homes.

These are among a bevy of concerns Democrats are taking to their congressional delegates, saying the Republican tax plan would hurt the middle class in California—a state with high property values and scarce housing stock.

State Assembly Speaker Anthony Rendon of Paramount announced Thursday that he and 53 other Assembly Democrats signed a letter urging representatives to take their time on tax legislation rather than aim to pass a measure by the end of the year.

Assembly Speaker Anthony Rendon. Photo by Max Whittaker for CALmatters

“There should be no rush,” they wrote. “Better to give Californians legislation they can be thankful for than to rush to pass legislation by Thanksgiving.”

Assembly Republicans were invited to sign the letter, which was addressed to House Majority Leader Kevin McCarthy and Minority Leader Nancy Pelosi. None did.

Senate Democrats also chimed in, asking Congress not to exacerbate California’s housing crisis. In a letter being prepared for McCarthy and Pelosi, President Pro Tem Kevin de Leon of Los Angeles led his caucus in seeking to preserve a 4-percent low-income housing tax credit and a tax exemption for the private activity bond program, which they say are critical to the affordable housing package California passed this year.

Senate President Pro Tem Kevin de Leon. Photo by Rich Pedroncelli/AP

“We approved this robust bipartisan package because we recognized that the housing shortage is hamstringing our state’s economy and threatening our long-term prosperity. Our investments in housing are estimated to generate more than 70,000 units and over 190,000 jobs in the next five years,” Senate Democrats wrote.

The fretting doesn’t stop there.

Following Gov. Jerry Brown’s plea for GOP delegates not to support the tax proposal, his finance director, Michael Cohen, outlined Thursday many other ways the GOP measure would harm middle-class Californians.

Specifically, he wrote that the plan takes away a deduction for personal loss, which would harm thousands of victims of last month’s Northern California wildfires. And it would make college less affordable by eliminating the deduction for student loan debt and and imposing a new tax on tuition waivers.

As the state’s chief fiscal advisor, he questioned taking on a $1.7 trillion deficit over the next 10 years in order to stimulate the economy when unemployment is low and corporate earnings are at all-time highs.

“Deficit-financed tax cuts are not likely to lead to significant growth because the negative economic effects of the debt would crowd out investment,” Cohen wrote.


All 14 California House delegates voted today to back a budget blueprint that could eliminate state and local tax deductions, a move that would be costly for many California taxpayers.

Some members in vulnerable districts immediately sought to downplay the vote, saying they have been assured the Republican tax overhaul will tackle or offset the potential tax hit from the loss of those deductions. The vote clears the way for House leaders to unveil their tax plan next week.

“I am confident (it will be fixed), but I’ve also said that is my number one priority, so if we can’t get it fixed then we’re going to have problems,” said Rep. Steve Knight of Palmdale.

A day earlier, Gov. Brown had pleaded with GOP members not to support the budget. About one in three California taxpayers claim the deduction. If it were repealed, filers would see an average increase of $3,290.

“Getting rid of an individual’s ability to deduct his or her California taxes is a horrible idea, but it is made far worse when you preserve—at the same time—the right of corporations to take those same deductions,” he wrote.

The Republican plan calls for steep tax cuts for corporations and promised reductions for middle-income taxpayers, a doubling of the standard deduction used by most Americans, shrinking the number of tax brackets from seven to three or four, and the repeal of inheritance taxes on multimillion-dollar estates. The child tax credit would be increased and the tax system would be simplified.

Already, House Minority Leader Nancy Pelosi of San Francisco is vowing to label Republicans “accomplices” in eliminating the state and local tax deduction. As soon as President Trump unveiled his budget framework that would eliminate the write-off, state Democrats condemned the move for targeting taxpayers in high-tax, high-cost states such as California.

But California Republicans remain committed to overhauling the tax code. Prior to the vote, House Majority Leader Kevin McCarthy of Bakersfield said, “A vote for the budget is a vote to move tax reform forward.”

McCarthy Talks Tax Cuts, New Iran Sanctions | Fox News

House Majority Leader Kevin McCarthy (CA-23) appeared on Fox News this morning to discuss the latest on tax reform and key votes in the House this week on Iran and North Korea sanctions.

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