WASHINGTON, Oct 6 (Reuters) - Disagreement among U.S. congressional Republicans is already swirling around a tax cut plan unveiled days ago by President Donald Trump, with disputes over proposals to repeal a deduction for state and local tax payments and repeal the tax on inheritances.
The discord showed the difficulty of overhauling the complex U.S. tax code, a task that has defied Washington since 1986, the last time a comprehensive rewrite was completed despite lobbyists who defend each tax break.
Trump has yet to score a major legislative win since taking office in January and is pushing hard for a tax code revamp. But his plan is meeting the same internal Republican tensions between moderates and conservatives that have sunk his efforts this year to repeal the Obamacare health law.
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High-profile Congressional Republicans
High-profile Congressional Republicans
Senator John McCain (R-AZ)
U.S. Senate Majority Leader Mitch McConnell (R-KY)
House of Representatives Majority Leader Kevin McCarthy
House Speaker Paul Ryan (R-WI)
Senator Lindsey Graham
Sen. Rand Paul (R-KY)
Rep. Mark Meadows (R-NC)
Senator Richard Burr (R-NC)
U.S. Senator Susan Collins (R-ME)
Sen. Marco Rubio (R-FL)
Senator Ted Cruz (R-TX)
Senator Lisa Murkowski (R-AL)
Senator Orrin Hatch (R-UT)
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Another early obstacle is the projected fiscal impact of the plan, which would slash U.S. revenues and expand the federal deficit and the national debt, which now exceeds $20 trillion.
Republican lawmakers from high-tax states such as New York exited meetings this week with Kevin Brady, chairman of the tax-writing committee of the House of Representatives, saying there would be some sort of compromise on repealing the deduction for state and local tax payments.
Separately, some Republican senators were questioning the repeal of a 40 percent inheritance tax levied on estates worth more than $5.5 million, or $11 million for married couples -- a tax paid only by the wealthiest American taxpayers, or about 0.2 percent of Americans, according to the Center on Budget and Policy Priorities, a research and policy institute.
"That is not a priority for me as we seek to craft this tax bill," Republican Senator Susan Collins, who has often been a key Republican vote, told Reuters in a statement on Thursday.
Republicans want to use a procedure known as budget reconciliation to pass eventual tax legislation, which allows passage with a simple majority in the 100-seat Senate. With Republicans holding 52 Senate seats, and Democrats already lining up against the measure, they can lose the support of only two Republican senators and still pass a bill - with Vice President Mike Pence able to cast a tie-breaking vote.
One Republican fiscal hawk, Senator Bob Corker, has already said he cannot support tax legislation that adds to the annual federal deficit.
The Trump plan, made public last week, calls for as much as $6 trillion in tax cuts over 10 years. Without accompanying spending reductions, the tax cuts would hugely expand the deficit, according to some estimates. The administration contends tax cuts would spur so much economic growth that the resulting new revenues would help offset the cost of the cuts.
In addition, Republicans are proposing "revenue raisers," such as ending the deduction for payments of state and local tax, known as SALT. Doing that would raise about $1.3 trillion over a decade, said the Tax Policy Center, a Washington think tank.
Almost 30 percent of taxpayers currently deduct state and local taxes. In New Jersey, for example, 41 percent of tax filers, meaning individuals or married couples, claimed the deduction, which averaged $17,850, according to a Government Finance Officers Association (GFOA) analysis of Internal Revenue Service data.
Though the deduction disproportionately benefits people in high-tax states and localities, individuals in all states claim it. In Georgia, for example, 33 percent of tax filers claim an average deduction of $9,158, the GFOA report said.
The high-tax states, however, tend to be Democratic-leaning, such as California and New York, and of the seven states with no income tax of their own, six are Republican-leaning.
RELATED: A look at 10 ridiculous tax loopholes
10 ridiculous tax loopholes
10 ridiculous tax loopholes
1. Alaskan Whaling Captain Deduction
Alaskan whaling captains can avoid tax on up to $10,000 of whaling-related expenses per year. Costs they can deduct include purchasing and maintaining the boat, weapons and gear, food and supplies for the crew, and storing and distributing the catch.
When a business pays for capital improvements — like building a new office or buying a new machine — it typically deducts those costs over the life of the asset, which could translate into decades. A special exception exists in the tax code for “certain motorsports entertainment complex property placed into service before Jan. 1, 2017,” which refers to NASCAR tracks and other racing facilities. The exception allows businesses to deduct the costs over seven years, which is much faster than usual.
(Onfokus via Getty Images)
3. Hawaii’s Exceptional Tree Deduction
If you take care of an “exceptional tree” in Hawaii, you can deduct up to $3,000 on your state taxes of what it costs you. A local county arborist advisory committee must declare it an exceptional tree and you’ll need an affidavit from the arborist stating the tree’s type and location and what you paid to maintain it. You can take this deduction only once every three years.
(agaliza via Getty Images)
4. Florida’s Rent-a-Cow Deduction
If you live in Florida and want to pay lower property taxes — perhaps on your second home that has a lot of open land — consider renting some cows. Under greenbelt laws, if you use your land for agricultural purposes, your real estate taxes are based on the agricultural value of the land, not its market value.
This deduction doesn’t explicitly state how many cows you have to raise or even that you have to own them. Developers often let a few dozen rented cows roam their land — sometimes even during construction — to lower their property tax bills.
5. New Mexico’s Centenarian Deduction
If you live to be 100 years old, moving to New Mexico will cut your tax bill because you will pay no tax to the state. A caveat: You cannot take the deduction if you claim someone as a dependent. Paying no state income tax might not be a huge break, but if it’s available, take it.
(gece33 via Getty Images)
6. Qualified Performing Artist Deduction
If you’re searching for a tax loophole you can use — one that doesn’t benefit only the 1 percent — the IRS allows qualified performing artists to deduct certain expenses. To qualify, you must have performed for at least two different employers during the year and received at least $200 from each, had business expenses that exceeded 10 percent of your performing arts income and claimed less than $16,000 in adjusted gross income for the year. If you’re married, that $16,000 limit applies to both your spouse’s and your incomes.
(DragonImages via Getty Images)
7. Home Landscaping Deduction
If you regularly see clients at your home office, you might be able to write off a portion of your landscaping costs. The IRS allows a deduction for the portion of your home costs that are related to your home office, so as long as you use your home office exclusively for business, you might be able to take this one. If keeping your lawn looking good for your clients is part of the job, you’re in luck.
(Elenathewise via Getty Images)
8. Personal Pool Deduction
Install a pool for medical treatments and you could be in for a big tax break. One taxpayer suffering from emphysema and bronchitis was prescribed swimming by his doctor as part of his treatment, so he built a pool and wrote off a portion of the costs as a medical expense. He could deduct only the amount by which the installation cost exceeded the home’s increase in value, but he did get to include upkeep costs.
Deducting body oil on your taxes might sound downright crazy, but you might be able to. One professional bodybuilder needed to shine a little brighter during competition so he applied body oil. When tax season rolled around, he included the cost as a business expense. At first, the IRS disallowed the deduction, but the Tax Court approved because using the oil made him more competitive.
(bekisha via Getty Images)
10. Charity Meat Deduction
Meat packers, butchers and processing plants in South Carolina can earn a $75 state tax credit for each deer carcass they process and donate. You must be licensed with the state or the U.S. Department of Agriculture and you must have a contract with a qualified nonprofit that distributes food to the needy. If you use any of the deer for commercial purposes, you will not qualify for the donation.
Republican Representative Chris Collins of New York, a Trump ally, told reporters earlier this week that lawmakers from high-tax states, such as his own, were discussing "ways to level the playing field," including capping the amount of the deduction or putting other limits on it.
"There are many districts with Republican members where state and local deduction is used by a large portion of the tax payers. So it's not surprising that it's not strictly a blue state/red state thing," said Frank Sammartino, a senior fellow at the Tax Policy Center.
Senate Democratic leader Chuck Schumer called the state and local tax deduction the "Achilles' heel" of tax reform and said Democrats would oppose any move to take it away. He dismissed compromise plans as unfeasible.
Brady said on Thursday that at this point there has been no change to the framework, but tax writers are "listening very carefully" to lawmakers' concerns.
"It's got to be frustrating when you're in a state where local and state officials really put the screws to taxpayers. We are determined to provide tax relief to every American regardless of where they live," Brady told reporters. (Additional reporting by Richard Cowan; Writing by Amanda Becker; Editing by Kevin Drawbaugh and Leslie Adler)