Bowing to concerns from Republican House members in high-tax states, the chamber’s chief tax writer said he’ll preserve a federal income-tax break for property taxes.

“At the urging of lawmakers, we are restoring an itemized property tax deduction to help taxpayers with local tax burdens,” House Ways and Means Chairman Kevin Brady said in a statement Saturday afternoon.

The announcement was welcomed by Representative Chris Collins, a New York Republican, who said the compromise would address the need “to protect middle income working families” in states like his own. He predicted it would assuage Republicans’ concerns.

House Ways and Means Committee Chair Kevin Brady, R-Texas
House Ways and Means Committee Chair Kevin Brady, R-Texas Bloomberg News

But in a sign of the complex balancing act that Brady must perform to produce a tax-overhaul bill this week, the property-tax announcement came on the same day that the National Association of Home Builders pulled its support for the legislation. The group’s chief cited concerns that the bill might undermine existing tax breaks that support the housing market. Likewise, a coalition that includes the National Association of Realtors said in an emailed statement that it “will vigorously oppose this plan.”

Brady’s statement was aimed at resolving an impasse between House leaders and roughly two dozen Republican lawmakers from states including New York and New Jersey over an attempt to repeal federal tax breaks for state and local taxes. The issue threatened the bill’s prospects in the House. Brady plans to introduce actual bill text Wednesday.

$1.3 Trillion

Congressional leaders and President Donald Trump have suggested ending the existing state and local tax deductions as a way to generate as much as $1.3 trillion over 10 years—revenue that would help offset the deep tax-rate cuts they want for businesses and individuals. Restoring the property-tax deduction would trim that revenue projection by about a third—or $430 billion—said a conservative tax lobbyist who asked not to be named because discussions about the bill were private.

It would appear that deductions for state and local income taxes and sales taxes would still be repealed under the planned House bill.

In an earlier blow, Jerry Howard, chief executive officer of the NAHB, said the group will oppose the legislation because House Speaker Paul Ryan told him it won’t include a tax credit for mortgage interest and state property taxes. The association, which claims 140,000 members, will “do everything that we can now to make sure that it doesn’t pass,” Howard said.

Brady’s office released a statement Saturday afternoon that praised the home-builders group and called on members of Congress to study the tax-credit proposal closely “to determine if they want it included before tax reform heads to the president’s desk.”

The Saturday flare-ups signal the difficult path ahead for the tax overhaul that Congress and Trump have pledged to deliver by year’s end.

Secretive Process

The bill’s appearance Wednesday will end a secretive drafting process. Even Republican members of his Brady’s own committee said they weren’t aware of the details that would be included in the final bill. Now, as Ryan and Brady decide the final contours of the legislation, they’ll have to contend with vocal opposition.

The compromise Brady offered “would insert the heavy hand of Washington into state and local finance decisions, dictate winners and losers among states and unfairly penalize states that rely significantly on income taxes,” said a statement issued Saturday night by Americans Against Double Taxation, a coalition that includes realtors, a national teachers’ group and groups of state and local officials.

Howard, of the home-builders group, said Ryan called him on Saturday to say the NAHB’s sought-after credit won’t be included. The speaker said he didn’t believe rank-and-file Republicans understood the proposal well enough, Howard said.

The mortgage and property-tax credit would have helped lessen the impact of another proposal Ryan and Brady are pursuing. They want to almost double the standard deduction.

Taxpayers’ Choice

Taxpayers have a choice when preparing their federal tax returns—they can either itemize their deductions for expenses including home-mortgage interest, or they can claim the standard deduction. By almost doubling the standard write-off to $12,000 for individuals or $24,000 for couples, Congress would make the standard deduction far more attractive. At the same time, limiting the deduction for state and local taxes would make itemizing less attractive.

And if taxpayers don’t itemize, they can’t take the mortgage deduction—which realtors and home builders view as an important support for home ownership and home prices.

So the home builders proposed a credit—which would have been available even to people taking the standard deduction. Deductions decrease taxable income, while credits decrease taxes owed. Howard said the credit would better spur middle-class home ownership.

The credit also would have taken into account state property taxes paid, Howard said. He said Brady called him Friday night to express his ongoing belief that the credit was “a great solution to a couple of their problems” while alerting him to Ryan’s decision, Howard said.


NAHB had gotten positive reaction to the proposal from Republican members of the committee, Howard said, but Brady “very appropriately” had asked that the group not pitch the broader conference until “all the details were hammered out.”

“We worked in good faith with the committee, and the House leadership has chosen to take this course, which we view as very anti-homeownership,” he said.

Ryan also said he “did not personally have any policy problems with” the credit and would allow it “if we were able to convince enough people during the process that the credit could still be included,” Howard said.

The decision by NAHB’s leadership to pull support from the bill caps nearly two months of negotiations by the group, which has spent nearly $3 million on lobbying this year.

In September, before seeing a Republican outline for the plan, Howard said the group was at “DEFCON One” to support or oppose the bill, but that the details he had heard raised “red flags.”

Weeks later, upon seeing the proposal, other lobbying groups for real estate interests, including the powerful National Association of Realtors, worried that proposed changes would weaken the current mortgage deduction. In an unusual split, though, NAHB said it was “enthusiastically backing” the bill process while it went to work on a home ownership incentive that eventually became the credit.

“The hard-line stance that people are taking could be an impediment to reasoned debate over the future of the code and the future of the code’s commitment to home ownership,” Howard said Oct. 18.

—With assistance from Sahil Kapur

Bloomberg News