Cohn Says Ending State, Local Tax Deduction Up for Negotiation

President Donald Trump is open to negotiating on the deduction individuals take for state and local taxes, his top economic adviser Gary Cohn said Friday.

While the tax framework released Wednesday would eliminate that deduction, the provision isn’t a red line, according to Cohn, the director of the National Economic Council. The deduction is used extensively in high-tax states like New York, New Jersey and California. Eliminating it would raise an estimated $1.3 trillion that could be used to offset the plan’s proposed tax cuts.

“We are willing to work with the tax writers on the other dials that we have in the system,” Cohn said during a Bloomberg TV interview Friday.

Cohn said the president isn’t open to negotiating on the corporate tax rate, which the framework calls for cutting to 20 percent, down from 35 percent. Also, Trump isn’t flexible on a provision cutting the rate for pass-through businesses like partnerships and limited liability companies to 25 percent, according to Cohn. The current rate on pass-through income can be as high as 39.6 percent.

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The framework lacks extensive details about offsetting its rate cuts with additional revenue. It says most itemized deductions for individuals should be eliminated, without providing specifics — while calling for mortgage-interest and charitable-giving deductions to be preserved.

But it does single out the state and local tax deduction for elimination. That break tends to benefit high-income filers in Democratic states, but the move to abolish it would face resistance from some Republican House members in districts that use the deduction heavily.

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