WASHINGTON -- House Republicans on Wednesday said they are considering partially preserving the federal deduction for state and local taxes in their tax reform plan while House Democrats announced support for adding bond-related infrastructure provisions that include making Build America Bonds permanent.

A group of lawmakers who support the deduction have threatened to delay approval of the fiscal 2018 budget resolution, which is needed to proceed with tax legislation, unless an alternative to full repeal of the SALT deduction is found.

Republican House members from states with high taxes such as New York and New Jersey have lobbied to preserve the deduction for SALT, which is typically combined with deductions for mortgage interest and charitable donations by households that itemize.

Speaker Paul Ryan, R-Wis., told reporters that the House would vote on the Senate banking bill.
Speaker Paul Ryan, R-Wis., told reporters that the House would vote on the Senate banking bill. Bloomberg News

Speaker Paul Ryan, R-Wis., indicated at a Reuters Newsmakers event Wednesday that a deal on SALT is in the works. “I think there’s a way of addressing the concerns that members have,” he said.

House Ways and Means Committee Chairman Kevin Brady, R-Texas, expects the deal to be worked out before the details of the tax reform plan are unveiled Nov. 1.

"I do expect to reach an agreement with our high-tax lawmakers, because I think it's vitally important we help Americans keep more of what they earn, regardless of where they live," Brady said at a Wednesday breakfast sponsored by the Christian Science Monitor.

Possible options, Brady said, include continuing to allow the deduction of “some of those local taxes, especially in the area of property taxes.”

State and local governments also have lobbied on behalf of keeping SALT, saying that the deduction prevents double taxation.

The Government Finance Officers Association said Wednesday it continues to favor full preservation of the deductions for state and local income, sales and property taxes.

“Local tax systems have evolved over the past century based on the evolution of the local economies and within the framework of the deductibility of state and local taxes,” said Emily Brock, director of GFOA’s Federal Liaison Center. “Property taxes, income taxes and sales taxes are utilized by local governments differently across the U.S., and approved by the electorate, as dedicated revenues to provide local services and support public infrastructure. Different state and local governments utilize each tax differently.”

The National Association of Realtors also opposes repeal of the SALT deduction, arguing that it would raise taxes for millions of homeowners.

"Proposals to take away only part of the SALT deduction don’t change that," NAR President William Brown said. "Our position is that tax reform should first do no harm to current and prospective homeowners, and that’s what we’ll be watching for as this conversation progresses.”

House Ways and Means Committee Republicans planned to continue deliberations over the status of the SALT deduction Wednesday night.

House Republicans have decided to vote on the Senate budget resolution, rather than engage in negotiations with the Senate over the version that previously passed the House.

The Senate budget resolution would allow a $1.5 trillion reduction in expected federal revenue over 10 years, providing more room for enacting tax rate reductions.

Markup of the tax legislation by the House Ways and Means Committee is expected to begin Monday, Nov. 6, with the committee voting on the details throughout the week.

Republicans are planning a floor vote by the House the week of Nov. 13.

House Democrats, meanwhile, released a set of principles for tax reform that include an emphasis on infrastructure investment, increasing domestic manufacturing and raising take-home income for middle-income households.

In addition to making the Build America Bond program permanent, the Democratic outline for infrastructure investment generally calls for maintaining and expanding tax-exempt bond financing and updating current financing mechanisms without offering specifics.

It also calls for leveraging private investment to create public-private partnerships for infrastructure, making the New Markets Tax Credit program permanent, and enhancing the low-income housing tax credit and historic tax credit.

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