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Giles: Federal tax code should be fair for middle-class Americans, small business owners

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Mesa Mayor John Giles. (City of Mesa)

I am a huge supporter of reforming a broken and complicated federal tax system. Congress and the President should work together to make the tax code more fair for middle-class Americans and small business owners. One proposal should make homeowners skeptical of Washington’s latest promise of tax cuts.

As you may have heard, a group of leaders in Washington unveiled their framework for tax reform, and their No. 1 promise was tax cuts for the middle class. Unfortunately, it appears that many middle-income homeowners will see their taxes go up, not down, under the plan. That’s because this plan takes away the most popular – and one of the most valuable – deductions for households, which is widely taken by middle-income homeowners, the deduction for state and local taxes (SALT).

SALT has been in the federal tax code for more than 100 years, since the permanent income tax was first imposed. As one of only six deductions back in 1913, SALT was designed to prevent taxpayers from paying a second tax on income they already paid taxes on, and protect the fiscal integrity of state and local governments that provide vital public services in our federal system of government. It also furthered the goal of promoting homeownership by enabling homeowners to deduct their property taxes in addition to the separate deduction for mortgage interest.

SALT is claimed by 44 million American households on their federal returns. Nonetheless, Washington has this deduction in its crosshairs because eliminating it raises $1.6 trillion over 10 years that tax writers can use to fund other tax breaks, some of which have nothing to do with the middle class.

If the current proposal becomes law, many homeowners who itemize deductions today, including mortgage interest, may not qualify to itemize on their federal tax return in the future without the SALT deduction. As a result, the National Association of Realtors (NAR) found that homeowners with Average Gross Income (AGI) between $50,000 to $200,000 would see their taxes go up with an average increase of $815. Furthermore, NAR also found that housing values might drop about 10 percent because tax reform would increase the after-tax cost of housing and dampen demand.

Equally important, taking away SALT puts at risk the tax base that supports public sector services and vital investments here in Mesa and at the state and local levels across the country, including solid infrastructure, reliable public safety and excellent education – services and support that benefit all taxpayers in communities across the entire country.

Eliminating the deduction would result in a triple whammy for many middle-class taxpayers: higher taxes, lower home values, and fewer public services that make communities vibrant and attractive places to live.

Every organization representing state and local governments and public service providers, including both Republicans and Democrats, opposes the elimination of SALT as part of tax reform. The SALT deduction has served the nation’s citizens well for more than a century. Washington should stay true to history and middle-class homeowners and preserve it.

– John Giles is mayor of Mesa.

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