Trump Tax: Killer for Californians

BCK FILE--As most of the country slept the US Senate passed a tax bill that included scribbled give-aways on the margins and will pack a punch to Californians, especially vis a vis the elimination of the state and local tax deductions and change to mortgage interest deductions. (Photo above: CA Congressmember Nancy Pelosi.) 

California has the highest marginal state income tax in the country at 13.3 percent. Other high-tax states include Oregon, Minnesota, Iowa, New Jersey, Vermont, District of Columbia, and New York. 

Over 44 million Americans depend on these deductions, especially in states like California. Sen. Shelley Moore (R-W.VA) fought for the elimination of deductions for state and local taxes (SALT) on federal tax returns, sticking it to residents of states with high tax rates. 

We have a not-so-Golden state sales tax of 7.25% … higher than any other state … and throughout California, the sales tax is between 9-10 percent. The loss of the SALT deductions will likely outpace any decrease in federal rates, causing a drop in disposable income for many. The elimination of the state and local tax deduction will slam Californians and Angelenos. 

The change to the mortgage interest deduction in the senate bill will also hurt Californians. The median home price in the state is close to $500,000; in Los Angeles County, $575K. If you already own a home, you can rest easy with the changes in mortgage interest and property tax deductions; you’ll still be able to deduct on mortgages up to $1 million for married couples. State and local property tax deductions will be capped at $10K. 

If you are looking to move or become a homebuyer, however, you’ll be less lucky. Interest deductions would cap at $500K according to the House plan. The counties with the most loans above $500K are all in California, specifically the Bay Area, Los Angeles, and San Diego. 

Interest on home equity debt will no longer be deductible and there’s a $10K cap on deduction for real estate taxes. Real estate owners also have to hold on to homes for five years instead of 2 to avoid capital gains taxes. (The real estate industry isn’t looking quite so hot.) 

On the other hand, things should go swimmingly for rental property owners, like the the Trumps and the Kushners. The interest deduction limit to other types of businesses doesn’t hold for those who own rental property who can continue to deduct mortgage interest in its entirety. 

With Californians and Angelenos presumably buying fewer homes, the rental market should continue to be healthy -- and rent will likely keep rising; bad for renters, good for rental property owners. 

Governor Brown sent letters to the California congressional members, urging them to vote against the tax plan. Darryl Issa (R-49th District) fired back that this is only an issue because of California’s policies that have led to high tax rates. 

According to the Tax Policy Center, between 15-20 percent of those earning $86,000 to $300,000 will see a tax increase from changes to the tax code while those earning over $700,000 will see an average savings of $34,000. By 2027, 28 percent of Americans will see an increase in their taxes. 

The majority of benefits, according to The Tax Policy Center, will go to the wealthiest Americans and corporate interests. And, if you happen to live in Los Angeles or in anywhere in the state of California, the hit will be even greater.


(Beth Cone Kramer is a Los Angeles writer and a CityWatch columnist. This is part of an ongoing series on the work of the 2017-2018 Budget Advocate Committee.