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California Would be One of the States to Lose the Most

Cities, Counties, Schools and Realtors Urge Congress to Reject Proposed Cut to Property Tax Deduction

November 13, 2017

The associations representing California’s local governments, economic development leaders, schools and realtors urged the California congressional delegation on November 9 to protect the State and Local Tax (SALT) deduction and a key economic development tool at risk under the Tax Cuts and Jobs Act in its current form.

The SALT deduction makes the cost of living more affordable in states like California. Eliminating the deduction for state and local income taxes and capping the local property tax deduction at $10,000 would hurt hard-working California families and only add to the housing affordability crisis in the state by eliminating a key incentive for homeownership. In 2015, 6.1 million California taxpayers claimed the SALT deduction with the average deduction at around $18,000.

The SALT deduction has been an integral component of the federal tax code since its creation in 1913 and was one of the six deductions allowed under the original tax code. Eliminating or capping federal deductibility for state and local property, sales and income taxes would represent double taxation and would upset the carefully balanced fiscal federalism that has existed since the permanent creation of the federal income tax over 100 years ago.

Tax-exempt Private Activity Bonds (PABs) are an important tool for state and local governments to help finance major public projects, including transportation and water infrastructure, affordable housing construction, schools – all of which are essential for job growth, healthy economies, safe communities and the nation’s economy. Eliminating PABs’ tax-exempt status would drive up the costs of borrowing for these projects by 25–35 percent and be a disincentive to spurring private sector investment in our communities.

Given the impact on California families and our economy, we respectfully urge the California congressional delegation to oppose eliminating or capping the SALT deduction or removing the exemption on PABs as part of any tax reform proposal.

Quotes from Coalition Leaders

Carolyn Coleman, Executive Director, League of California Cities®:

“Hard working California tax payers and our communities would be harmed by the current proposal. We hope that California’s congressional delegation hears this message and takes swift action to reject any proposals that would cause people to pay taxes on their income twice, would destabilize key incentives for homeownership and increase borrowing costs for state and local governments to finance projects that benefit our communities.

Matt Cate, Executive Director, California State Association of Counties:

“California Counties are increasingly concerned with several provisions in the House tax reform package. The narrowing of the SALT deduction alone would impact county resources and their ability to meet the service needs of the public. The additional changes to infrastructure financing tools, including the taxable status of Private Activity Bonds (PABs) and the ability to advance refund municipal bonds, will fundamentally harm the way counties do business on behalf of our residents.”

Gurbax Sahota, President and CEO, California Association for Local Economic Development:

“The current tax proposal eliminates Private Activity Bonds – eliminating an important economic development financing tool California uses to fund manufacturing expansion, health care facilities, affordable housing, schools, nonprofits, and other economic development projects. Combined with a repeal of advance refunding bonds, this will absolutely impact our ability to attract investment to future projects like these, as well as our ability to create and retain jobs in these areas. These provisions are bad for California and our residents.”

Vernon M. Billy, CEO and Executive Director, California School Boards Association:

“We urge the California delegation to act on behalf of the taxpayers in California who would be hurt by the elimination of the SALT deduction, including the talented school employees who work in our schools educating and training students. Eliminating the deduction has the same impact as raising property, income and sales taxes in every congressional district in our state. By effectively raising property taxes, the deduction also makes local school bonds more expensive, complicating our efforts to build and repair schools and provide students with the resources needed for a high-quality 21st-century education.”

Steve White, President, California Association of REALTORS®:

“The move by Congress to eliminate state and local tax deductions essentially levies a double tax on California, this and other attacks on real estate tax incentives removes the tax benefits for people to buy homes and raises taxes on hundreds of thousands of Californians. Homeownership has and continues to be the best way for families to grow wealth and increase the middle class. Congress should look at ways to incentivize and increase homeownership rates, not increase taxes on families wanting to buy a home.

Source:  California School Boards Association



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