Trump agrees to partial SALT deduction to appease Sen. Collins

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WASHINGTON – President Trump has agreed to demands by Republican Sen. Susan Collins of Maine that her leadership should add a $10,000 homeowner deduction for property taxes to the tax reform bill in the Senate.

Collins told reporters Tuesday that this partial restoration of the deduction for state and local taxes, which is identical to the provision passed by the House, will help her get to a yes vote on tax reform. "I'm not there yet, but we are making progress on issues that I care about," she said.

Collins put the president on the spot at a Senate Republican luncheon Tuesday in the U.S. Capitol. "I got up and asked the question so my colleagues could hear his answer and he said that he was for the $10,000 property tax deduction being put into the Senate bill," she said.

"I would prefer that it would be broader than property taxes," Collins said. "I think the $10,000 cap is fine, but in the interest of simplicity, matching the House is important. So it's enough for me on that issue."

But that’s still bad news for state and local governments which have maintained that even partial loss of the SALT deduction will hamstring their ability to raise revenue.

An estimated 29 million households would lose their property tax deduction even with the $10,000 cap, according to an analysis by the Institute on Taxation and Economic Policy earlier this month.

About 80% of middle-class homeowners would no longer be eligible to claim the SALT deduction while only 13% of high income earners would be unable to itemize, the analysis found.

Senate Democrats officially lost their ability to filibuster the bill Tuesday when the Senate Budget Committee voted 11-10 along party lines to pair the bill with energy legislation that would open part of the Arctic National Wildlife Refuge to drilling.

One Republican on the committee, Sen. Bob Corker of Tennessee, had been a possible no vote because of the $1.4 trillion in debt that the Joint Committee on Taxation estimates the tax bill would add over 10 years. "We were able to work out a trigger," Corker told The Bond Buyer. "It increases taxes if it doesn't meet the targets that are laid out."

That trigger, however, creates problems with other Republicans.

"I am not going to vote to implement automatic tax increases on the American people," Sen. John Kennedy, R-La., told reporters. "I mean if I do that, consider me drunk. I am not going to do that."

Kennedy and most other Senate Republicans think the tax legislation will foster faster economic growth that will increase federal tax revenues enough to offset the projected deficits.

Twenty hours of Senate floor debate on the tax legislation is expected to begin Wednesday.

The tax legislation would hamstring the municipal bond market by terminating advance refundings after Dec. 31 and repeal the deduction for state and local taxes.

Collins said she could withhold her support on a House-Senate conference agreement if the $10,000 property tax deduction for homeowners is not in the final bill. She also could withhold her support of the final bill if the Senate does not pass two bipartisan bills -- one to extend payments to health insurers to offset the cost of subsidies for low-income individuals and the other to create high-risk health insurance pools in the interim.

Tuesday's Senate Budget Committee vote gives an imprimatur to a parliamentary budget rule that allows Republicans to use the 52-48 seat advantage to pass the tax bill by a simple majority.

Senate Finance Committee Chairman Orrin Hatch, R-Utah, has the authority to offer a manager’s amendment to the bill that was approved by his committee in a 14-12 party line vote.

Floor amendments to the bill are possible, but it would take at least three Republican senators and all Democrats to enact any changes favorable to the municipal bond market.

The House-passed version of the tax overhaul also ends advance refundings, which means muni market supporters have an uphill fight in keeping the 1986 tax law’s provision allowing one advance refunding for governmental bonds and 501(c)(3) bonds for nonprofits.

The House bill terminates private activity bonds after Dec. 31, but the Senate bill does not and even enhances PABs by eliminating the alternative minimum tax that applies to them. Senate Majority Whip John Cornyn from Texas told The Bond Buyer earlier this month he plans to continue to advocate during House and Senate negotiations on behalf of PABs that can be used to fund infrastructure along with public-private partnerships.

House Ways and Means Committee Chairman Kevin Brady, R-Texas, was noncommittal Tuesday in predicting whether PABs will be terminated in the final tax bill.

“I encourage the Senate to do their best and produce the best tax bill they can and we’ll take that up in conference,” Brady told The Bond Buyer in a hallway interview.

Brady, however, said he will advocate for keeping the $10,000 property tax deduction in the final bill. “That’s the House bill and the House position which I am going to strongly advocate for in the conference committee, so I think that’s good news,” he said.

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