In summary
President Trump today unveiled his proposal to revamp the federal tax code, and state Democrats swiftly pointed out that it could hit Californians particularly hard by revoking a deduction that disproportionately benefits the Golden State.
President Trump today unveiled his proposal to revamp the federal tax code, and state Democrats swiftly pointed out that it could hit Californians particularly hard by revoking a deduction that disproportionately benefits the Golden State.
Short on detail, Trump’s framework calls for the elimination of “most itemized deductions” with the exception of the write-off on mortgage interest payments and charitable giving.
Getting rid of the deduction on state and local tax payments—a tax break that allows taxpayers to write off some of their non-federal taxes—would have little consequence for Red states that have low local taxes. But it would have a major impact on Californians, both because of our higher-than-average state and local tax rates and our sizable population of millionaires (lower earners tend not to take the standard deduction). In 2015, Californians used the deduction to write off nearly $113 billion in earnings.
“Elimination of the state and local tax deduction could lead to an economic downward spiral in California, including the loss of good-paying jobs and cuts to critical public safety and social service programs,” Democratic State Controller Betty Yee said in a statement.
State Senate President Pro Tem Kevin de León also chastised the president for possibly eliminating state and local deductions. “President Trump and Republicans in Congress again show where their true priorities lie: making the lives of the rich easier and the lives of working Americans dramatically tougher,” he said in his own statement.
Under Trump’s proposal, however, the standard deduction available to all taxpayers would be nearly doubled. The plan also envisions cutting income taxes on corporations and pass-through businesses, allowing more families to take advantage of the Child Tax Credit, and repealing both the Alternative Minimum Tax and the Estate tax.
That last proposal earned a special call out from Democratic State Sen. Scott Wiener of San Francisco.
“California does not have to follow Washington down this foolish path” he said, “but instead we can enact our own estate tax.” Last year Wiener proposed putting a measure on the 2018 ballot that would amend the state constitution to allow a state tax on inheritances over a multimillion-dollar value.
For now, Trump’s proposal is just that—a proposal. Any reforms to the tax code will have to be voted into law by Congress.