House passes sweeping GOP tax plan

WASHINGTON — Eager to deliver major legislation to President Trump, House Republicans on Thursday passed a sweeping tax overhaul bill that numerous analyses show would disproportionately hurt individuals in California and other high-tax states.

The bill passed 227 to 205 with 13 House Republicans, including three from California, voting no and not a single Democrat voting yes. The vote now shifts the focus of tax overhaul to the Senate, which has its own legislative version.

Among the dissenting GOP House members Thursday were Californians Tom McClintock of Elk Grove (Sacramento County), Dana Rohrabacher of Costa Mesa (Orange County) and Darrell Issa of Vista (San Diego County).

All three expressed concern about the bill’s potential to increase taxes on their constituents, mainly because of the loss of the state and local tax deduction, valued by residents of California, New York, New Jersey and Maryland, all Democratic strongholds.

House Majority Leader Kevin McCarthy (front, left) and Speaker Paul Ryan celebrate the bill’s passage with fellow GOP members. House Majority Leader Kevin McCarthy (front, left) and Speaker Paul Ryan celebrate the bill’s passage with fellow GOP members. Photo: Susan Walsh, Associated Press Photo: Susan Walsh, Associated Press Image 1 of / 8 Caption Close House passes sweeping GOP tax plan 1 / 8 Back to Gallery

Although McClintock represents a reliably conservative district, Issa and Rohrabacher face potentially tough re-election races next year.

“It would cause tax increases for many of my constituents,” Rohrabacher said. “I’ve always run on the idea that I would not raise people’s taxes.”

He said a number of his constituents have told him they would see tax increases of $5,000 to $10,000 if the legislation becomes law. That’s not only because the bill slashes the state and local tax deduction, Rohrabacher said, but also because it would eliminate many other middle-class deductions.

Those proposals, along with a $10,000 cap on property tax deductions, are designed to offset a reduction in business taxes called for in the House bill. While providing a modest tax cut for many middle- and lower-income families, it would deliver enormous tax cuts for the wealthy.

Republicans argued that this distribution of benefits is unavoidable because the wealthy pay the bulk of income taxes.

The House bill also would add $1.5 trillion to the federal deficit over the next decade, and much more after that. Deficit hawk groups often allied with Republicans in the past have denounced the legislation.

But most of California’s House Republicans were enthusiastic. Rep. Doug LaMalfa, R-Richvale (Butte County), heading before the vote into a meeting with the House GOP caucus and President Trump, dismissed the criticisms.

“California has done more to hurt itself than most other states,” LaMalfa said. “You have the highest gas prices, highest home prices, and a heck of a lot more poverty inland, away from the coastal elite area, than meets the eye.”

LaMalfa said the legislation “is actually helping the vast majority (of Americans) quite a bit. I have a hard time hearing, ‘Oh this is going to hurt Californians,’ because the Legislature is working overtime down there (in Sacramento) to do destructive things to the economy, especially my economy, my constituents.”

House Minority Leader Nancy Pelosi of San Francisco said Democrats plan to use the bill as a tool in next year’s congressional elections.

“I don’t know what it takes to penetrate the brains of House Republicans,” she said. She said the bill is a “stunning manifesto to wealthy people in this country and corporate America.”

“We’ll be sure their constituents know that,” she added.

The House action delivers on GOP promises to pass tax legislation before Thanksgiving, clearing the way for the Senate to move forward on its version with a goal of passage by the end of the year.

If, by then, a compromise version of the House and Senate legislation passes both chambers and is signed by Trump, the tax changes would take effect Jan. 1.

Republican lawmakers said their meeting with Trump was upbeat. The president cracked jokes and praised his recent swing through Asia, drawing lots of cheering, they said. A GOP lawmaker heading into the meeting, however, was overheard telling a colleague that members “are going to be disappointed if they think the president is going to give us direction.”

The Senate bill, still in flux, could pose a bigger challenge for the GOP. Individual tax cuts in that version would expire in 2025, but the business tax cuts would be permanent. That would transform a major chunk of the tax code into temporary policy, complicating the ability of individuals to plan their finances.

The Joint Committee on Taxation, a nonpartisan arm of Congress that analyzes tax bills, released estimates Thursday showing that by 2027, the Senate bill would raise $27 billion for the U.S. Treasury by significantly increasing taxes on individuals earning up to $75,000. Individuals earning over $1 million would see their after-tax incomes rise by 0.6 percent, the largest benefit of any income group. Americans earning $30,000 or less would face tax hikes by 2021.

The analysis showed that more than 100 million households, or 54 percent of taxpayers, would either be worse off or see no benefit from the Senate bill. The legislation would also eliminate the mandate that people buy health insurance, a provision that the Congressional Budget Office projected would raise health insurance premiums and cause 13 million people to lose health coverage.

Like the Senate bill, the House version would slash corporate tax rates from 35 to 20 percent, and offer multinational corporations a tax “holiday” of an even lower rate on the $2.6 trillion they have stashed abroad as overseas profits.

Going forward, both bills would assess zero tax on overseas corporate earnings. Republicans argue that this would level the playing field with foreign countries and discourage multinationals from parking their earnings abroad to avoid a high U.S. corporate tax rate. Critics contend the provision is an invitation to companies to move operations offshore.

The House bill reduces tax brackets from seven to four — 12, 25, 35and 39.6 percent — and nearly doubles the standard deduction to $12,000 for individuals and $24,000 for married couples. The large standard deduction would lead to far fewer people itemizing deductions and, for many, could offset the elimination of numerous middle-class tax deductions, including those for medical expenses, student-loan interest and mortgages above $500,000.

The White House in a statement called House passage “a big step toward fulfilling our promise to deliver historic tax cuts for the American people by the end of the year.”

Republicans, the statement continued, “are working together to allow hardworking, middle-class families to keep more of their money, and to empower our companies and workers to dominate their global competition. A simple, fair, and competitive tax code will be rocket fuel for our economy, and it’s within our reach. Now is the time to deliver.”

California Republicans who supported the bill said they believe it will boost the economy. Paul Cook, R-Yucca Valley (San Bernardino County) said he “voted the way I thought my constituents wanted.”

Rep. Ed Royce, R-Fullterton (Orange County) said he thinks the bill could boost economic growth in California to 5 percent a year.

“I think it’s going to advantage California in terms of the economic growth we’re going to see,” he said. “I think this will drive economic growth at 5 percent per year, and I think also that the number of jobs created is going to create tremendous opportunity not only in California but across the country.”

Carolyn Lochhead is The San Francisco Chronicle’s Washington correspondent. Email: clochhead@sfchronicle.com Twitter: @carolynlochhead

How California’s House members voted

All of California’s 39 Democrats voted no.

Republicans voting no

Darrell Issa of Vista (San Diego County)

Tom McClintock of Elk Grove (Sacramento County)

Dana Rohrabacher of Costa Mesa (Orange County)

Republicans voting yes

Ken Calvert of Corona (Riverside County)

Paul Cook of Yucca Valley (San Bernardino County)

Jeff Denham of Turlock (Stanislaus County)

Duncan Hunter of Alpine (San Diego County)

Steve Knight of Palmdale (Los Angeles County)

Doug LaMalfa of Richvale (Butte County)

Majority Leader Kevin McCarthy, of Bakersfield

Devin Nunes of Tulare

Ed Royce of Fullterton (Orange County)

David Valadao of Hanford (Kings County)

Mimi Walters of Irvine