The House of Representatives has passed H.R. 1, the Tax Cuts and Jobs Act of 2017, by a vote of 227-205. Now it's up to the Senate to pass its version, then both chambers will have to reconcile the differences in their plans. There are a few things California taxpayers can like in what the House passed, like the elimination of the Alternate Minimum Tax, but there is also quite a bit to hate. Californians do not need to be reminded that we are already over taxed; that we have the highest sales tax in the nation; that our personal income tax has the highest top rate in the nation; or that we have the highest corporate income tax in the West. We are a close second to Pennsylvania on who pays the highest gas tax in the nation, although if you add on the cost of our cap-and-trade program it does put us over the top. Our property tax rates have been stabilized thanks to Proposition 13, but there is an effort underway to dismantle that as well.
We also pay our way at the federal level; don't buy into the myth that California is being subsidized by other states. California is one of 11 states that receives less than what it pays in federal taxes and yet California taxpayers make our state number nine in what we pay per person in federal taxes. And, with passage of this tax plan, it is only going to get worse. An analysis by the Institute on Taxation and Economic Policy states that California taxpayers will see a net tax increase of $12.1 billion in 2027 alone. Their study shows that the states hit the hardest by this plan, California, New York, New Jersey and Maryland will face tax increases to "partly fund the tax cuts flowing to other parts of the country."
When you hear someone from D.C. say that this plan is going to lower taxes for the middle class, don't be confused into thinking they mean the middle class in California where a family of four from Orange County making $84,450 a year now qualify as low income. Middle class is a relative term.
Almost all deductions have gone away in the House except for up to $10,000 of property tax, charitable giving and the mortgage interest deduction, which would be capped to a $500,000 mortgage. In June of this year the median home price for an existing home in Orange County hit a record number of $795,000. The National Association of Home Builders states that 3.7 million households already pay more than $10,000 in property tax a year and in California one-third of homes purchased have a mortgage over $500,000. Yes there is a temporary increase in personal tax credits, but that goes away in five years.
The elimination of the State and Local Tax deduction has raised the most debate. Some argue that allowing it to continue protects high tax states from having to make tough tax cuts of their own and that the states that benefit the most from this deduction are being subsidized by other states. Rubbish. Remember, California is already a net donor state. We pay more in federal tax than we get back.
Californians get a larger subsidy by deducting our state and local taxes because we pay much higher federal taxes than a majority of states.
If we truly wanted to level the playing field and keep government from picking winners and losers by allowing certain deductions there should be a larger debate on a flat tax. But, that is not happening.
Only three republican congressmen from California voted against H.R. 1, Dana Rohrabacher and Darrell Issa from Orange County and Tom McClintock from Northern California. In Congressman McClintock's statement explaining his vote, he clarifies that the personal income side of the bill "does significant harm, particularly to many families in high-cost, high-tax states like California."
California taxpayers live under the rule of one political party that seems intent on making sure we pay the tax collector until it hurts. I guess it was too much to ask that the other party that controls Washington would treat us better.
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