The San Diego Union-Tribune Editorial Board has long supported a much-simpler tax code — one that had fewer brackets, that limited the deductions that enable individuals to avoid paying income taxes and that targeted the provisions that encourage executives to hide profits abroad instead of reinvesting in and trying to grow their companies.

That’s why we were so encouraged by Treasury Secretary Steven Mnuchin’s calls earlier this year for just such a tax code as a way to sharply boost economic growth. But it is impossible to consider the House Republicans’ plan approved Thursday and a proposal being fine-tuned by Senate Republicans as reform when by far their biggest beneficiaries are the very wealthy. The people who least need tax relief would instead save hundreds of billions of dollars through the elimination of the estate tax and the alternative minimum tax.

This alone makes the GOP tax plans unacceptable. But here’s another reason the plans must be revised: Both would make California’s most pressing problem — its high cost of housing — even worse.

Under current tax law, homeowners are allowed to deduct the interest they pay on mortgages up to $1 million if they itemize their federal returns. The House bill would reduce that to $500,000. Moreover, the House bill reduces to $10,000 the amount of property taxes that can be deducted, while the Senate bill eliminates the deduction altogether. Given that California has nearly half of U.S. mortgages of more than $500,000, any combination of these proposals would hammer millions of homeowners here.


As if that’s not bad enough, the House bill would also harm California families at the low end of the income spectrum by eliminating types of tax-exempt bonds that now pay for roughly half of all U.S. affordable housing projects. Private activity bonds are issued by state or local governments and sold to companies to help pay for needed public projects — typically, housing, hospitals and infrastructure.

A Bay Area News Group analysis said the House plan would cost California $2.2 billion in annual funding for affordable housing developments. Tia Boatman Patterson, executive director of the California Housing Finance Agency, warned that if enacted, the effect would be “catastrophic.” The Senate bill would not affect the bonds. But since both the Senate and House bills would sharply cut corporate taxes, companies would have less reason to buy the bonds to reduce tax exposure.

Private activity bonds are a perfect example of the ways the tax code has been used over the years to encourage positive outcomes that would be otherwise less likely without financial incentives. House Republicans argue that these bonds are unfair because they subsidize the borrowing costs of some companies, giving them an unfair advantage over rival firms. This is a reasonable argument.

But if Congress moves to unclutter the tax code, it must do so with an eye on unintended consequences. As much as this editorial board has emphasized that adding market-rate housing stock is the only real long-term solution to California’s housing crisis, there’s no question that affordable housing programs benefit hundreds of thousands of state residents. Gutting such programs without considering the consequences and offering alternatives to help struggling families is irresponsible.


Republicans are eager for a legislative victory after a difficult year in Washington. But they still need to sweat the details with tax reform — and seek to limit painful collateral damage.

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