President Donald Trump is open to negotiating on the deduction individuals take for state and local taxes, his top economic adviser Gary Cohn said Friday.

While the tax framework released Wednesday would eliminate that deduction, the provision isn’t a red line, according to Cohn, the director of the National Economic Council. The deduction is used extensively in high-tax states like New York, New Jersey and California. It’s frequently cited by White House advisers as an example of carve-outs they want to end for the wealthy. Eliminating the deduction would raise an estimated $1.3 trillion that could be used to offset the plan’s proposed tax cuts.

“We are willing to work with the tax writers on the other dials that we have in the system,” Cohn said during a Bloomberg TV interview.

Senate Finance Committee Chairman Orrin Hatch is keeping his options open on what to do about the state and local tax deduction, a spokeswoman said.

“Chairman Hatch recognizes that every major provision within the Tax Code has an important constituency and consequence. As the Senate Finance Committee begins its work on this once in a generation opportunity, he will work with members to examine these provisions and make appropriate decisions,” Julia Lawless said in an e-mail.


Business rates

Cohn said the president isn’t open to negotiating on the corporate tax rate, which the framework calls for cutting to 20 percent, down from 35 percent. Also, Trump isn’t flexible on a provision cutting the rate for pass-through businesses like partnerships and limited liability companies to 25 percent, according to Cohn. The current rate on pass-through income can be as high as 39.6 percent.

The framework lacks extensive details about offsetting its rate cuts with additional revenue. It says most itemized deductions for individuals should be eliminated, without providing specifics -- while calling for mortgage-interest and charitable-giving deductions to be preserved.

National Economic Council director Gary Cohn
National Economic Council director Gary Cohn Bloomberg News

But it does target the state and local tax deduction for elimination. That break tends to benefit high-income filers in Democratic states, but the move to abolish it would face resistance from some Republican House members in districts that use the deduction heavily.

Representative Dan Donovan, a Republican who represents Staten Island, said he’s "very encouraged" by Cohn’s comment that the White House is willing negotiate on the state and local deduction.

"The president and Gary Cohn and Treasury Secretary Steve Mnuchin are all New Yorkers," Donovan said Friday in an interview. "They understand the importance of this to New York."


Code simplification

House Speaker Paul Ryan said Wednesday night on Fox News that the state and local tax deduction amounts to the federal government subsidizing high-tax states, which he argued is bad policy. Conservative advocates believe ending that break would encourage states to reduce their taxes.

Despite the flexibility on state and local deductions, Cohn said Friday that the objectives of the tax plan are to lower rates for everyone and simplify the code by getting rid of loopholes. “By creating simplification we were trying to get rid of all of the loopholes and all of the deductions that mostly wealthy people use -- remember only 25 percent of families in America use the itemized deduction,” said Cohn.

Trump and White House advisers have repeatedly said that the tax plan won’t benefit the wealthy.

“Our framework includes our explicit commitment that tax reform will protect low-income and middle-income households, not the wealthy and well-connected,” Trump said during a tax speech on Wednesday in Indianapolis. “They can call me all they want. It’s not going to help. I’m doing the right thing, and it’s not good for me. Believe me.”

When asked whether the 10 percent of taxpayers who pay about 80 percent of taxes would change under the tax framework, Cohn said: “We think that the 10 percent will be paying about the same amount of the taxes.”

Bloomberg News