Republican Tax-Cut Package Could Raise Taxes for Thousands in Montgomery County
Officials say limiting mortgage interest deduction, eliminating the state and local tax deduction would have significant impact
Tax form, stock photo
Two proposals in the House and Senate Republicans’ tax cut plan likely would result in higher federal tax payments for tens of thousands of middle-class Montgomery County residents who itemize their returns.
“This is a tax bill that would be devastating to middle-class and upper-middle-class earners,” Rep. Jamie Raskin, a Democrat, said in an interview Friday. “It goes without saying—this would be a nightmare for working-class people.”
Raskin said proposals in the tax package to reduce the mortgage interest deduction and possibly remove the state and local tax deduction would disproportionately affect residents in Maryland and especially Montgomery County, where local government spends heavily on services such as education, recreation and other programs resulting in higher property tax payments for residents.
“Abolishing the deduction for state and local income taxes is a killer in Maryland generally, but my congressional district suffers the worst,” Raskin said, referring to the 8th District, which includes Bethesda, Chevy Chase, Kensington and a portion of Frederick County.
The House tax-cut plan proposes capping the state and local tax (SALT) deduction for property taxes at $10,000. The SALT deduction enables individuals to deduct property tax payments, as well as state and local income and sales taxes, if they itemize their returns.
The Senate version of the bill would eliminate all state and local tax deductions.
The Republicans are proposing to alter popular deductions to make sure the bill doesn’t add to the federal deficit by more than $1.5 trillion. If the bill is more costly than that, it would require 60 votes in the Senate, which would allow Democrats to defeat the bill.
Both versions of the bill call for lowering the corporate tax rate from 35 percent to 20 percent. And they both would roughly double the standard deduction—a move that Congressional Republicans said would help middle-class taxpayers who don’t itemize their taxes.
The Tax Policy Center estimates that about 70 percent of taxpayers use the standard deduction, which would increase from $12,700 to $24,000 per couple and from $6,350 to $12,000 for an individual under the Republican proposal.
“What the analysis shows, the average taxpayer in all income levels gets a tax cut,” House Speaker Paul Ryan said in an interview on Fox News earlier this week.
Raskin’s office provided Bethesda Beat with data that shows that about 136,300 residents in Congressional District 8 use the SALT deduction. Those residents take an average deduction of $15,291—meaning many area residents would have to reduce the deduction they claim if the House version moves forward. That would result in higher federal tax payments.
In Congressional District 6, which Rep. John Delaney represents and includes Potomac and parts of western Montgomery County, about 148,800 residents claim an average SALT deduction of $14,410, according to the data.
The House bill also calls for lowering the mortgage interest deduction cap from the current $1 million to $500,000.
The policy would mean a decrease in the deduction for homeowners with mortgages ranging from $500,000 to $1 million.
In Montgomery County, the median home price is $516,400, according to the National Association of Realtors. Over the last decade, 78 percent of the homes sold in Montgomery County sold for between $500,000 and $1 million, according to county finance data.
“We thought the bill was supposed to help the middle class,” Peg Mancuso, a local Realtor and the past president of the Greater Capital Area Association of Realtors said Thursday. “I think the tax cuts will slow the overall real estate market. I think people will stop and question whether they feel ownership is worthwhile and whether they should rent instead.”
She said that if the bill passes, home values in Montgomery County and the Washington, D.C., area could drop by about 10 percent.
Raskin said the mortgage interest deduction wouldn’t be as pressing as the elimination of SALT, especially if Republicans raise the cap to $750,000, which could be part of a compromise. But he added that the decrease in the deduction still would be felt in Montgomery County, where housing is expensive.
“I represent a lot of people who are in houses that are like middle-class housing in other parts of the country, but are far more expensive here,” Raskin said. “There is nothing for us in this terrible tax plan.”
Republicans also might not alter the mortgage deduction at all. On Thursday, The New York Times reported that Senate Republicans are tweaking their version of the tax-cut bill and plan to keep the current $1 million cap for the mortgage interest deduction.
The National Association of Counties estimates that more than 266,000 households, about two-thirds of Montgomery County’s 390,000 households, itemize their taxes and use the SALT deduction.
Maryland Democratic Sen. Chris Van Hollen has been lobbying publicly against the proposed tax cuts.
“This is a huge giveaway to special interests and the uber rich, financed by raising taxes on millions of middle class Americans and adding $1.5 trillion to the national debt,” Van Hollen said in a statement Thursday. “Unbelievably, Senate Republicans have made things even worse for tens of millions of Americans who currently deduct their state and local taxes—including almost half of all Maryland taxpayers.”
The House plans to vote on its version of the bill next week. It’s not yet clear when the Senate plans to vote on its version. Republicans have said they hope to send an approved version of the tax-cut package to President Donald Trump’s desk by Christmas.
Republican Montgomery County executive candidate Robin Ficker said Friday he hasn’t been able to keep up with all the details of the Republican proposal because they keep changing.
“We don’t know what’s going to be produced from this sausage making,” Ficker said. “It’s changing day by day. People are raising scare tactics, but we really don’t know what’s in the bill. If it’s good for Montgomery County, I’m for it. If it’s not good for Montgomery County, I’m opposed to it.”
Raskin said Republicans have been drafting the bill in secret and components of it remain in flux.
“The details keep changing,” Raskin said. “This tax bill was hatched in the dark of night and it’s proceeding at the speed of light.”
He added that he would like Republicans to slow down on tax reform and make the process more public. He noted that in 1986, Congress passed a bipartisan tax reform package that simplified the U.S. tax code after more than two and a half years of debate.
After it passed, The New York Times wrote in an editorial that year, “For years to come, students of politics will look to the odyssey of the new tax law as a prime example of how the American system of government gets things done.”
Raskin described Republican tax reform efforts as a “disaster.” He would like to see Congress instead broaden the tax base, then reduce rates.
He said other portions of the current Republican legislation, such as a proposal in the House version to eliminate the student loan deduction, would hurt students, while nonprofits fear that increasing the standard deduction would reduce the number of filers who itemize their deductions and thus remove the tax incentive to donate to charities.