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Discord among Republicans already weighs on Trump's tax plan

[October 06, 2017] By Amanda Becker and David Morgan

WASHINGTON (Reuters) - Disagreement among U.S. congressional Republicans is already swirling around a tax cut plan unveiled days ago by President Donald Trump, with disputes over proposals to repeal a deduction for state and local tax payments and repeal the tax on inheritances.

The discord showed the difficulty of overhauling the complex U.S. tax code, a task that has defied Washington since 1986, the last time a comprehensive rewrite was completed despite lobbyists who defend each tax break.

Trump has yet to score a major legislative win since taking office in January and is pushing hard for a tax code revamp. But his plan is meeting the same internal Republican tensions between moderates and conservatives that have sunk his efforts this year to repeal the Obamacare health law.

Another early obstacle is the projected fiscal impact of the plan, which would slash U.S. revenues and expand the federal deficit and the national debt, which now exceeds $20 trillion.

Republican lawmakers from high-tax states such as New York exited meetings this week with Kevin Brady, chairman of the tax-writing committee of the House of Representatives, saying there would be some sort of compromise on repealing the deduction for state and local tax payments.

Separately, some Republican senators were questioning the repeal of a 40 percent inheritance tax levied on estates worth more than $5.5 million, or $11 million for married couples -- a tax paid only by the wealthiest American taxpayers, or about 0.2 percent of Americans, according to the Center on Budget and Policy Priorities, a research and policy institute.

"That is not a priority for me as we seek to craft this tax bill," Republican Senator Susan Collins, who has often been a key Republican vote, told Reuters in a statement on Thursday.

Republicans want to use a procedure known as budget reconciliation to pass eventual tax legislation, which allows passage with a simple majority in the 100-seat Senate. With Republicans holding 52 Senate seats, and Democrats already lining up against the measure, they can lose the support of only two Republican senators and still pass a bill - with Vice President Mike Pence able to cast a tie-breaking vote.

One Republican fiscal hawk, Senator Bob Corker, has already said he cannot support tax legislation that adds to the annual federal deficit.

The Trump plan, made public last week, calls for as much as $6 trillion in tax cuts over 10 years. Without accompanying spending reductions, the tax cuts would hugely expand the deficit, according to some estimates. The administration contends tax cuts would spur so much economic growth that the resulting new revenues would help offset the cost of the cuts.

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U.S. President Donald Trump meets with a bipartisan group of members of Congress, including U.S. Representative Josh Gottheimer (D-NJ) (L) and Representative Tom Reed (R-NY) (R), at the White House in Washington, U.S. September 13, 2017. REUTERS/Jonathan Ernst

In addition, Republicans are proposing "revenue raisers," such as ending the deduction for payments of state and local tax, known as SALT. Doing that would raise about $1.3 trillion over a decade, said the Tax Policy Center, a Washington think tank.

Almost 30 percent of taxpayers currently deduct state and local taxes. In New Jersey, for example, 41 percent of tax filers, meaning individuals or married couples, claimed the deduction, which averaged $17,850, according to a Government Finance Officers Association (GFOA) analysis of Internal Revenue Service data.

Though the deduction disproportionately benefits people in high-tax states and localities, individuals in all states claim it. In Georgia, for example, 33 percent of tax filers claim an average deduction of $9,158, the GFOA report said.

The high-tax states, however, tend to be Democratic-leaning, such as California and New York, and of the seven states with no income tax of their own, six are Republican-leaning.

Republican Representative Chris Collins of New York, a Trump ally, told reporters earlier this week that lawmakers from high-tax states, such as his own, were discussing "ways to level the playing field," including capping the amount of the deduction or putting other limits on it.

"There are many districts with Republican members where state and local deduction is used by a large portion of the tax payers. So it's not surprising that it's not strictly a blue state/red state thing," said Frank Sammartino, a senior fellow at the Tax Policy Center.

Senate Democratic leader Chuck Schumer called the state and local tax deduction the "Achilles' heel" of tax reform and said Democrats would oppose any move to take it away. He dismissed compromise plans as unfeasible.

Brady said on Thursday that at this point there has been no change to the framework, but tax writers are "listening very carefully" to lawmakers' concerns.

"It's got to be frustrating when you're in a state where local and state officials really put the screws to taxpayers. We are determined to provide tax relief to every American regardless of where they live," Brady told reporters.

(Additional reporting by Richard Cowan; Writing by Amanda Becker; Editing by Kevin Drawbaugh and Leslie Adler)

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