Editorial: Protect Local Government and the Middle Class

Dear Fellow Mayors and Councilmembers,

You have heard by now that leaders in the House of Representatives plan to bring their Tax plan to a vote this week. You have also quite likely heard that California sits squarely in the crosshairs of this proposal, primarily due to the elimination of tax benefits that support our economy and our middle class. 
 

At the top of this list is the elimination of State and Local Tax Deductions (SALT). Taxpayers have been allowed to deduct these taxes since the inception of the federal income tax -- in 1913! The average value of the SALT deduction for a California household is more than $18,000. Californians deducted $140 billion in 2015 and $112.5 billion was in state and local taxes, according to the Tax Policy Center. 

These local taxes fund critical services in our state, when we already pay far more in federal taxes – $17 billion – than we receive back. A recent report from the Government Finance Officers Association notes, that if the SALT deduction is eliminated it would “result in job losses, reduction in spending on capital equipment and decrease in infrastructure investment.” These are some of the very things the current Administration purports to value.

It gets worse.
 

Cutting the mortgage interest deduction in half, from $1 million to $500,000, would clearly affect homebuyers in regions across California. Moreover, capping property tax write offs at $10,000 doubles the hit with our high housing costs and related property taxes. Many California homeowners would exceed both these caps.

Even more concerning is the elimination of “private activity bonds”. The House version would eliminate these tax-free tools utilized by nonprofit developers to offset creation of affordable housing. As reported in the New York Times, “The House version of the bill eliminates private activity bonds, which would reduce the supply of new affordable housing by close to 1 million units, one-third of those in California, according to an analysis by Novogradac & Company, a national accounting firm based in San Francisco.” 

The Times reports that the Senate version of the bill retains these bonds, but reduces the value of Low-Income Housing Tax Credits, which play a role in financing practically all new affordable housing construction in America. According to data provided by the U.S. Department of Housing and Urban Development (HUD), the program produced 2,402,484 low-income housing units between 1986 and 2016.