In summary

With the Trump administration and Republicans in Congress gearing up to make America’s tax code great again, one of California’s biggest tax breaks might be on the chopping block: the deduction on state and local taxes.

With the Trump administration and Republicans in Congress gearing up to make America’s tax code great again, one of California’s biggest tax breaks might be on the chopping block: the deduction on state and local taxes.

House Speaker Paul Ryan has supported eliminating the deduction in the past.  And while the President himself hasn’t come out firmly in favor of scrapping the provision altogether, his campaign tax plan did propose something that might the deduction more difficult to take, given that Trump proposed capping the amount of total individual tax deductions.

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Under current law, taxpayers can write off a portion of the income, sales, property, and real estate taxes they pay to their state and local governments. According to the Tax Policy Center, that comes at an annual cost to the federal government of more than $50 billion, making it the 9th largest write-off.

Not surprisingly, this is a loophole with plenty of fans. In California, where state income taxes are on the high end, roughly 34 percent of all households make use of the deduction. According to another report by the Tax Policy Center, eliminating it would result in an average tax increase of $3,218 for Californians, though that average figure might be a little misleading. The deduction goes disproportionately to those who have the most income to deduct—that is, the very rich.

If the Trump administration pushes to scrap this deduction as part of a larger tax package—and that’s still a big if—they can expect serious push back from high-tax states, most of which happen to be Democratic strongholds.  But alongside hints that the administration may want to cap the mortgage interest deduction, it’s clear that the President is serious about plugging up loopholes—even the most popular ones.

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Ben Christopher

Ben covers California politics and elections. Prior to that, he was a contributing writer for CalMatters reporting on the state's economy and budget. Based out of the San Francisco Bay Area, he has written...