Millions in the middle class will feel it if GOP kills this tax break

Why tax reform is so hard
Why tax reform is so hard

Republicans may try to eliminate a tax deduction that helps many in the middle class.

The state and local tax deduction is one of many tax breaks under consideration in Washington as a way to offset the cost of tax cuts that the GOP are proposing. The tax break lets tax filers who itemize deductions write off their property taxes as well as their state and local income taxes or general sales taxes.

Republican tax negotiators stress how much they want tax reform to help the middle class. And they note that the highest income households tend to benefit most from the state and local deduction.

That's true. But an updated study released this week finds that millions in the middle class also could be affected by the repeal of the tax break.

The study, conducted by the Government Finance Officers Association using IRS data, found that nearly 40% of tax filers making between $50,000 and $75,000 in 2015 claimed the deduction. That is nearly 7.6 million households.

Of those making between $75,000 and $100,000 (6.9 million households), 53% claimed it, as did 76% of those making between $100,000 and $200,000 (13.9 million households).

Related: Who pays if Congress kills the state and local tax deduction

Some will argue that a six-figure income up to $200,000 should never be considered "middle class." But the truth is a lot depends on how large your household is and where you're located. A $150,000 income for a family of five in a high-cost, high-tax city, for instance, would most likely be considered middle class for that area.

Conversely, a single person bringing in $75,000 in a low-cost, low-tax city might be considered very well off relatively speaking.

The data from the state financial officials doesn't indicate household size in its income breakdown. But an analysis of 2014 IRS data by the Tax Policy Center found that of all itemizers making between $50,000 and $75,000, nearly half were single, while only about a third were single in the $75,000 to $100,000 category, and just 16% were never married in the $100,000 to $200,000 group.

Tax filers in all states would be affected by repeal, including Republican states with no income tax, the report said. For instance, a family of three in Conroe, Texas, making $100,000 saves $2,450 on their federal tax bill because of the state and local tax deduction.

That said, it's impossible to know if that family's total tax bill would go up or stay the same because tax reform would involve other changes to the tax code. For instance, Republicans have said they want to double the standard deduction. That could lessen the bite for them of losing the state and local deduction.

But the report by the state and local finance officers notes that that might still not be enough to offer them actual tax relief: Even if the standard deduction was tripled, "a significant portion of taxpayers would still end up with tax increases."

The group, along with several others representing state and local finance and budget officials, are part of an umbrella group lobbying against repeal.

Advocates for preserving the tax break argue that it avoids double taxation on the same income and it helps provide a stronger revenue base for local governments to provide essential services. But those arguing for repeal say the deduction forces people in low-tax states to subsidize people living in high-tax states.

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