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House Passes Tax Reforms that Eliminate State and Local Tax Deductions and Tool to Fund Major Public Projects

Senate Finance Committee Passes its Tax Reform Proposal

November 17, 2017
The U.S. House of Representatives on Nov. 16 passed HR 1, the “Tax Cuts and Jobs Act” marking another milestone in the Republican effort to enact significant tax reform.
The League of California Cities® joined the National League of Cities and other state municipal leagues in calling on Congress to reject this bill, which harms taxpayers, homeowners and the economy. The League also issued a statement on Nov. 9 with the California State Association of Counties, California Association for Local Economic Development, the California School Boards Association and the California Association of REALTORS® urging members of California’s congressional delegation to reject the reforms. California is one of the states that would lose the most under HR 1.

Known as SALT, the bill the House passed yesterday eliminates the State and Local Tax Deduction. For Californians, this deduction makes the cost of living more affordable. More than 6 million Californians in 2015 claimed SALT with the average deduction being approximately $18,000. Millions of Americans would be taxed twice under a SALT repeal. HR 1 also caps the local property tax deduction at $10,000 annually. Capping mortgage interest for newly purchased homes at $500,000 would destabilize the housing market by eliminating a key incentive for homeownership. Not only will these reforms raise taxes for millions of taxpayers in this state, but they also threaten economic growth. 
The reforms eliminate the tax-exempt status for Private Activity Bonds (PABs), which serve as an important tool to help state and local governments finance major public projects. The implications of this change will affect construction of transportation and water infrastructure, affordable housing, schools, and public hospitals. The costs to finance these projects would increase by 25 to 35 percent. This would result in less private and public sector investments in communities throughout California.
Next Steps
The Senate Finance Committee on Nov. 16 also debated and passed its tax reform bill. The measure is expected to go to full Senate for action the week after Thanksgiving. The two versions would then move to a joint conference committee with the goal of sending President Trump a final bill prior to Christmas for his approval.

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