Democrats in key House races push against tax deduction cap

Geoff Mulvihill and Bill Barrow, Associated Press

In this Saturday, Sept. 15, 2018, photo, Katie Porter, candidate seeking election to the U.S. House to represent the 45th Congressional District of California arrives for a campaign event in Tustin, Calif. California Rep. Mimi Walters continued support of the tax overhaul sets up a stark choice in a district won by Democrat Hillary Clinton in the 2016 presidential race. Walters’ opponent, Porter, is trying to make the tax changes a key part of her argument against the incumbent. (AP Photo/Chris Carlson)

CHERRY HILL, N.J. (AP) -- Congressman Leonard Lance voted last December with the interests of his northern New Jersey district in mind when he opposed his own party's sweeping tax overhaul.

The cap on deductions for state and local taxes that was part of the Republican plan was bound to mean that many people in the high-tax state would pay more.

"My constituents know I will fight for complete deductibility," he said.

Despite his opposition, the tax law has become one of the flashpoints in Lance's re-election campaign.

In their quest to regain the majority in the U.S. House, Democrats are focusing on the law's potential to hurt voters in certain congressional districts in high-tax states such as New Jersey, New York and California. The three states combined have about a dozen competitive House seats, roughly half the number Democrats need to retake the chamber, and are in places where voters are upset about the new deduction limits.

Most voters won't know until next year whether they will pay more in taxes under the GOP law, but the Democrats aren't waiting. They are promoting the narrative that the cap on deductions for state and local taxes will hurt some taxpayers in those states — or at least mean they will not see the same benefit from the law as people in other states.

"People want to see the SALT deduction restored," said Tom Malinowski, Lance's Democratic opponent in the campaign for New Jersey's 7th Congressional District. "There is precisely 0.0 percent chance it will be restored if we send Congressman Lance back to Washington to vote for the same GOP leadership that passed the tax bill and will defend it to its dying political day."

Underscoring that point, Republican leaders in the House recently proposed changes to the tax law, including making the $10,000 cap on state and local tax deductions permanent. The current law sets the cap only through 2025, after which it would once again be an unlimited deduction.

He said taxes are the top issue voters raise on the campaign trail. Malinowski, an assistant secretary of state under former President Barack Obama, already is running television commercials saying the unlimited deduction ought to be restored.

Josh Zylbershlag, a technology director for a law firm who lives in Lance's congressional district, said it appears he will receive a net tax cut from the new law, but is troubled by the likelihood that some of his neighbors will not.

He said he believes the cap on deductions was designed to hurt people in Democratic-leaning states such as New Jersey — some of whom might not know they will have to pay higher taxes until they file their returns next year.

"Republicans are counting on the fact that the impacts won't be felt before the 2018 midterms," said Zylbershlag, who has gotten involved in Malinowski's campaign.

Any boost Democrats receive from pushing arguments over a single tax provision may be marginal. But even marginal gains with voters in a handful of congressional districts could be enough to tip the balance of power in Washington, where Democrats need a net increase of 23 seats to win a majority in the House.

Before the Republican tax overhaul, filers who itemize their returns could deduct without limits the state and local taxes they paid, including property taxes. The new law caps the deduction at $10,000 — a compromise after some Republicans initially wanted to eliminate it.

In most of the country, that threshold would affect only a small slice of households. But in many suburbs and cities, particularly in higher-tax states, the potential impact of the cap is more widespread.

Those who are higher-income but not super wealthy — defined as making more than 80 percent of earners but less than the top 5 percent — are most likely to see higher federal tax obligations on this year's earnings, according to the Institute on Taxation and Economic Policy, a nonpartisan but left-leaning research group based in Washington, D.C. Nationally, about 14 percent of this group can expect to pay more under the GOP plan.

That percentage is greater in higher-income areas of high-tax states.

In California, New Jersey and New York, that income range starts at less than $150,000 and rises to at least $280,000. More than 20 percent of taxpayers in that range will have higher taxes, according to tax policy institute.

A report from the conservative Heritage Foundation found that the average tax bill will go down in every one of the nation's congressional districts. But roughly 1 in every 15 filers will see their tax bills rise, largely because of the cap on state and local tax deductions, according to analyses from the tax policy institute and the nonpartisan Tax Policy Center, which is based in Washington, D.C.

An Associated Press analysis found nearly 1,500 ZIP codes nationally where at least three-quarters of tax filers with incomes between $100,000 and $200,000 use the state and local tax deduction and have an average deduction above $15,000, according to the 2016 data, the latest available.

Taxpayers with incomes in that range and high deductions are among the most likely to have their tax obligations rise under the new law, experts say. Nearly two-thirds of the ZIP codes where they were concentrated are in California, New Jersey and New York.

California Rep. Mimi Walters, a Republican, embraces the tax law while reminding voters in her Orange County district that she helped convince House Speaker Paul Ryan not to eliminate the favored deduction altogether.

"People are starting to see the benefits of tax reform in the economy," said Walters, one of 11 House Republicans from California who voted for the tax bill. Three voted against it.

She believes those will outweigh concerns over a single provision of the bill.

Her continued support of the tax overhaul sets up a stark choice in a district won by Democrat Hillary Clinton in the 2016 presidential race. Walters' opponent, Democrat Katie Porter, is trying to make the tax changes a key part of her argument against the incumbent.

She said the law "punishes voters in this district" compared to people with similar incomes who live in lower-tax states.

"People get the message that Mimi Walters doesn't care about them," said Porter, a law professor at the University of California, Irvine.

In New Jersey, the politics surrounding the GOP tax bill were sensitive enough that every Republican in the state's U.S. House delegation except one voted against it. The no votes included the powerful Appropriations Chairman Rodney Frelinghuysen, whose committee was responsible for getting the bill to the House floor.

Frelinghuysen is among several dozen House Republicans who decided against running for re-election.

"It is the No. 1 issue I hear about, and I hear about it from Democrats and Republicans," says Rep. Josh Gottheimer, a New Jersey Democrat who represents a district that went narrowly for President Donald Trump in 2016. "This bill punishes my district."

In addition to worries about paying more in federal taxes, Gottheimer's constituents said they fear property values will decline now that homeowners are limited in the amount of local taxes they can deduct.

Jay Webber, a Republican state lawmaker running to replace Frelinghuysen, agrees the tax law could end up hurting many New Jersey residents. But he blames Democrats, who control much of the government in New Jersey and other high-tax states.

"The tax bill as a whole is a tremendous boon," he said. "I want to see the SALT cap gone ... but that issue is much more dictated by the policies out of Trenton. The highest property taxes, highest income taxes, highest business taxes — those are all handmaids of Democrats."

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Barrow reported from Atlanta. Follow Mulvihill at https://twitter.com/geoffmulvihill and Barrow at https://twitter.com/BillBarrowAP

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This story has been updated to correct that U.S. Rep. Rodney Frelinghuysen is chairman of the Appropriations Committee, not Ways and Means, and that Jay Webber is not running against U.S. Rep. Jay Gottheimer.