How Trump's tax cuts hurt the GOP in America's wealthy suburbs

Republicans are losing their hold on upper-middle-class suburbs, and the tax reform bill may be to blame.

Although a number of races are still too close to call, Democrats have taken 30 seats so far — more than the 23 GOP districts they needed to seize control of the House of Representatives. In swing districts across the country, new Democratic challengers vowed to defy the Trump administration while Republican incumbents touted the benefits of tax reform and a booming economy.

But the GOP’s tax reform bill may have disenfranchised fiscal conservatives in higher-income areas, since the Trump tax cuts capped the amount of deductions that Americans can claim on state and local taxes — abbreviated as SALT — to $10,000. For homeowners facing high property taxes, itemizing their taxes offered more deductions than the standard provision of $12,000.

RELATED: Take a look at the products that Trump's tax cuts have affected:

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Products directly hit by Trump's tariffs on Chinese goods
Meat: pork; beef intestine; rabbit meat; venison; frog legs
Fish and seafood:live fish including ornamental fish, trout, eels, tuna, and carp; chilled or frozen meat of various types of trout, salmon, halibut, plaice, sole, albacore, tuna, herring, mackerel, cobia, swordfish, pollack, whiting, catfish, rays, and more; various types of salted or smoked fish; other seafood including various types of lobsters, crabs, shrimps, prawns, oysters, scallops, mussels, clams, squid, octopus, conchs, abalone, sea cucumbers, and sea urchins.
Non-meat animal products such as eggs and dairy:Whey products; butter; various types of eggs including chicken; honey; hair of animals including human, hog, horse and badger; animal intestines, bladders; feathers; bones including shells, beaks, corals, hooves, antlers, and more.
Vegetables:onions; garlic; cauliflower and broccoli; cabbage; carrots; turnips; radishes; beats; cucumbers; peas of various types; beans; lentils; celery; mushrooms; peppers of various types; squash; okra; sweet corn; potatoes; sweet potatoes and yams; some types of tomatoes; spinach; Brussels sprouts.
Fruit and Nuts: Coconuts; cashews; almonds; hazelnuts; walnuts; chestnuts; pistachios; macadamia nuts; pecans; dates; figs; pineapples; guavas; oranges; mandarins; clementines; raisins; grapes; apples; pears; quinces; peaches; berries including strawberries, raspberries, cranberries, blueberries and others; bananas; a variety of dried fruits; peels of various fruits.
Cereals: wheat, including durum wheat; barley; oats; corn; various types of rice; grain sorghum; buckwheat; quinoa; and more.
Mill products: flours including those form wheat, corn, buckwheat, rice, rye, other cereals, potatoes, and bananas; groats and meal of various types including wheat, corn, oats, and rice; malt; starches of wheat, corn, potato, and more
Oil seeds: soybeans; seeds of sunflower, flax seed, sesame, mustard, poppy and more; planting seeds for certain crops; cocoas and mint leaves; and seaweeds.
Sugars and candies: cane sugar; candies with no cocoa
Breads and Pasta: uncooked pasta; various breads, pastries, cakes, and biscuits.
Prepared vegetables and fruits: various vegetables and fruits previously listen in their prepared or preserved forms; various fruit jams including strawberry, pineapple, apricot, and more; peanut butter; various fruit juices including orange, pineapple, lime, grape, apple, and more.
Other food items: soy sauce; condiments and seasonings; protein concentrates.
Beverages and vinegars: water, including mineral water; fruit or vegetable juices and juice mixes; beer from malt; wine, including rice wine; ethyl alcohol; vinegars
Food processing waste and animal feed: brans from processing; oil cakes; dog or cat food; animal feed
Tobacco products: various types and preparations of tobacco; tobacco refuse; cigars; cigarettes; smoking tobacco
Salts and minerals: salt/sodium chloride; sulfur; graphite; quartz; types of clays; chalk; slate; marble; granite; sandstone; dolomite; gypsum; some plasters; some types of cement; mica; Epsom salts
Ores, slag, and ash: ores of iron, copper, nickel, cobalt, aluminum, lead, zinc, tin, chromium, tungsten, uranium, titanium, silver, other precious metals, and others; slag, various types of ash.
Mineral fuels and oils: coal; lignite; peat; coke; tars; various types of light oil; various types of kerosene; petroleum oils; liquefied fuels including natural gas, propane, butane, ethylene, and petroleum; oil shale and tar sands
Inorganic Chemicals: chemicals such as chlorine, sulfur; carbon, nitrogen, oxygen, and silicon; acids including sulfuric, nitric, and more; various types of fluorides, chlorides, sulfates, nitrates, carbonates, and more.
Organic chemicals
Fertilizers: animal or vegetable fertilizers; urea; ammonium sulfate; sodium nitrate; and more.
Tanning and drying extracts, dyes, and paints
Essential oils, perfumes: perfume; lip or eye make up preparations; manicure or pedicure products; shampoo; hairspray; bath salts.
Soaps and cleaning products: various types of soap; leather and textile treatments; polishes for shoes and furniture.
Glues, adhesives, and enzymes
Cigarette lighter fluid
Photographic goods: various types of photo plates; instant film; various types of film in rolls; various types of motion picture film.
Various chemical products: pesticides; herbicides; fungicides
Plastics: vinyl flooring and other plastic floor and wall coverings; sausage casings; bags; gloves including baseball gloves; rain jackets; machinery belts.
Rubber: latex; rods, tubes, and other products; conveyor belts; various types of transmission belts; various types of pneumatic tires; gloves; gaskets; dock fenders.
Raw hides and leather: animal skins including cow, buffalo, sheep, goats, reptile; various types of leather made from cow, buffalo, sheep, goats, reptile; leather trunks and suitcases; leather handbags; CD cases; gloves including ski, ice hockey, and typical use; belts; fur clothing, incluidng artificial fur.
Wood: fuel wood; charcoal; various types of wood including oak, beech, maple, ash and cherry; moldings; rods; particleboard; various types of plywood; doors; corks and stoppers; wicker and bamboo baskets.
Wood pulp products
Paper: Newsprint; writing paper; vegetable parchment; carbon paper; self-adhesive paper; cigarette paper; envelopes; tablecloths; handkerchiefs; folders.
Silk
Wool or animal hair products: cashmere; yarns; tapestries and upholstery.
Cotton: fibers; thread; yarn; denim; satin.
Flax: yarn; fabrics
Man-made textiles: polypropylene; rayon; nylon; polyester
Other textile products, rope, twine: hammocks; fish nets; carpets;
Fabrics: corduroy; gauze; terry towel; lace; badges; embroidery
Headgear: caps; hairnets; wool hats; head bands
Stone, plaster, cement, asbestos: stone for art; marble slabs; roofing slate; millstones; sandpaper; floor or wall tiles; cement bricks.
Ceramics: fire bricks; pipes; tiles; porcelain and china.
Glass and glassware: balls; rods; drawn or blown glass; float glass; tempered safety glass; mirrors; carboys, bottles, jars, pots, flasks, and other containers; microscope slides; woven fiberglass
Precious stones and pearls: industrial diamonds; silver and products made of silver; gold and products made of gold; platinum; palladium.
Iron and steel and products derived from the metals:drums; tubes; pipes; doors; windows; screws; horseshoes;
Copper: plates; cables; tubes; pipes; springs
Nickel: bars; rods; wires
Aluminum:powder; cable; wire; screws.
Various metal products, tools, cutlery: industrial items made from lead, zinc, tin, and more; saw blades; bolt cutters; hammers; wrenches; crow bars.
Machinery, both industrial and retail: steam turbines; engines; fuel-injection pumps; air compressors; air conditioning machines; refrigerators; cream separators; hydraulic jacks; escalators; manure spreaders; copiers; automatic beverage-vending machines
Electronics: vacuum cleaners; hair clippers; spark plugs; generators; bicycle lights; electric amps; television cameras; various types of TVs; video projectors.
Vehicles and parts: axles; driving shafts; gear boxes; radiators.
Parachutes

Ships and boats: sailboats; motorboats; canoes; yachts.

Instruments for scientific or medical purposes: microscopes; cameras for non-art purposes; gauges for pressure, electrical currents, and more.
Clocks and watches
Furniture, bedding, mattresses: car seats; wood chairs; furniture designed for offices, kitchens, and more; mattresses; chandeliers; lamps.

Assorted items: buttons; stamps; paintings; collections of zoological, botanical, mineralogical, anatomical, historical, archaeological interest; antiques of an age exceeding one hundred years

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Voters in those districts may have had this in mind when they hit the polls in the midterms. Among the top 25 congressional districts ranked by uptake of SALT deductions, nine are controlled by Republicans in the current Congress.

Six of them flipped blue in the November 6 elections, and one – California’s 45th district – is too close to call.

All of the top 25 districts straddle the largest U.S. cities: New York City, Chicago, San Francisco, Los Angeles and Washington, D.C. The common trend: All have expensive housing markets with homeowners who commute to the city for work. In terms of voter priorities, those voters tend to prioritize low taxes and preservation of wealth over social issues like immigration.

The picture on SALT deductions is dramatically different in the rest of the country.

Most Americans do not claim SALT deductions because the standard deduction — even before the Trump bill — offered more deductions than itemizing would. Based on 2015 IRS data compiled by the Government Finance Officers Association, only 30% of Americans in an average U.S. congressional district opted to take SALT deductions.

The average take-up rate for SALT deductions in these top 25 districts was 47.8%.

Across the Hudson River

Head about an hour west of New York City and you’ll arrive in New Jersey’s 11th district, where more than 51.6% of taxpayers take advantage of the SALT deductions — the second highest take-up rate in the country. For 23 years, the district was held by Rodney Frelinghuysen, a Republican who was able to build a following on the promise of low taxes for a constituency that ranks among the highest-income earners in the country.

Frelinghuysen, a rank-and-file GOP leader who chairs the House Appropriations Committee, had to break with his own party in voting against the tax bill. The move drew the ire of Republican leadership, and Frelinghuysen ultimately decided not to run for reelection.

Democrat Mikie Sherrill was able to snatch the seat in the midterms, and frequently hit on how the effects of the tax bill hurt the district.

“This plan has been particularly bad for our state,” Sherrill said in a televised debate in October. She claimed that the average taxpayer in NJ-11 paid $19,000 in property taxes, only about half of which could be deducted under the new tax bill.

Carl Davis, research director at the Institute on Taxation and Economic Policy, told Yahoo Finance that the same story has been playing out across the country.

“I think Californians and New Yorkers are right to feel that they didn’t get an especially good deal out of that tax overhaul,” Davis said. “Their tax cuts, relative to their neighbors all across the country were definitely undersized.”

Proponents of the tax bill say the SALT cap, which tends to benefit the wealthier, will still be offset by a now-doubled standard deduction. Republican Peter Roskam, one of the key members of the tax-writing House Ways and Means Committee, heavily advertised how a larger standard deduction would simplify the tax filing to the size of a postcard.

Roskam ended up losing his seat in Illinois’s 6th congressional district, where Democratic challenger Sean Casten took to Medium.com to attack Roskam and the Trump tax cuts.

“Peter Roskam likes to hype his position on the Ways and Means committee to convince you he knows more about tax policy and you do,” Casten wrote. “It’s all a lie.”

With Roskam gone, the Republican side of the tax-writing House Ways and Means Committee looks thin on members who helped drive the tax reform bill. Three of the six subcommittee members did not run for reelection.

The new Democratic majority in the House likely sets up Richard Neal, a Massachusetts Democrat, to take the committee gavel, with Texas Republican Kevin Brady set up for head of the committee’s minority.

But with a mixed Congress — the Senate still has a GOP majority — it is unclear whether the Democrats can or would do anything about the SALT cap. Goldman Sachs analysts wrote after the midterms that reversing the SALT cap remains a possibility but very unlikely.

“We expect no major tax legislation to become law under a divided Congress,” Goldman wrote.

Brian Cheung is a reporter covering the banking industry and the intersection of finance and policy for Yahoo Finance. You can follow him on Twitter @bcheungz.

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