The Republican-led House flouted a White House veto threat Thursday, passing legislation to repeal estate taxes and permanently extend the federal deduction for state and local sales taxes — a boon to taxpayers in Texas and other places with no state income tax.
Despite veto threats issued this week, Rep. Kevin Brady, R-The Woodlands, the architect of the two tax provisions, vowed to press ahead.
“The president apparently has a warehouse of veto pens,” the Texan said in an interview after the vote. “I’m sure he’ll continue to use them until they’re depleted, but that won’t stop us from standing up for hardworking taxpayers.”
The state and local sales tax deduction — worth about $1 billion a year to Texas taxpayers — got 34 Democratic votes, including from Houston Democrats Sheila Jackson Lee, Al Green and Gene Green. All told, lawmakers from Texas provided nine Democratic votes in a largely partisan 272-152 split.
A repeal of the inheritance tax — which Republicans dub the “death tax” — got much less bipartisan support. It would lift the 40 percent levy on inherited assets of more than $5 million, a move that Democrats decried as a giveaway to rich heirs and heiresses.
Despite the partisan votes on the tax proposals — and their uncertain future in the Senate — Brady said they could be the catalyst for a more ambitious agenda of simplifying the U.S. tax code, a project that he has worked on for years as a top Republican on the tax-writing Ways and Means Committee.
“On the Ways and Means Committee, we believe that removing the asterisks from the tax code with these temporary provisions helps us move forward on overall tax reform,” he said.
About a fifth of Texas tax filers use the sales tax deduction, saving an average of $383 a year, according to a 2011 study of IRS data. Over the past decade, it has generally been renewed annually by Congress, including in December, when it was extended for the 2014 tax year.
Impact on Texas
The Lone Star State ranks third in the U.S. in the percentage of those who use the deduction, making it a potent issue for Texas lawmakers from both parties.
For Texas, one of nine Republican-leaning states with little or no income tax, the deduction has long been seen as a leveler with other states where taxpayers can deduct state income taxes.
Brady noted that the 272 House members who supported the permanent extension come close to the two-thirds majority needed to overcome a veto by President Barack Obama. But that “veto-proof” threshold is far less likely in the Senate, even if Democrats don’t first use procedural hurdles to prevent its passage.
The veto threat noted that the sales tax deduction would add $42 billion to the deficit over the next 10 years, a claim that Brady called “disingenuous.”
“Extending it permanently or extending it year to year is exactly the same dollar amount,” he said. The main benefit of making it permanent, he added, is to provide “honest scorekeeping and certainty.”
Democrats aimed their harshest criticism at the estate tax repeal. The White House said it would add $269 billion to the deficit over 10 years while benefiting less than 1 percent of Americans. The office of Democratic House leader Nancy Pelosi issued a statement Thursday calling it “a shameless effort that exclusively benefits the wealthiest of the wealthiest in our country.”
Brady and other Republicans cast it as a measure to help small-business owners and especially Texas farmers, who often have large land, animal and machine assets wrapped up in their family operations.
“The death tax is an unfair tax that penalizes Texas farmers and ranchers who want to hand down their small business to the next generation,” said freshman Rep. Brian Babin, R-Woodville.
Freshman Rep. Will Hurd, R-Helotes, called the tax “un-American.”
“I’ve had enough of the hypocrites who talk about achieving the American dream and then support policies that punish the families who do,” Hurd said.
“Family ranches, farms and small businesses across the district work hard and sacrifice to build something they can pass on to the next generation. Blind-siding a family who has just lost a loved one with a 40 percent tax bill that may cause them to lose their family business is immoral and un-American.”
The mostly party-line 240-179 vote to repeal the estate tax peeled off just seven Democrats who voted with the Republican majority. Among them was Rep. Henry Cuellar of Laredo, who also supported extending the sales tax deduction.
Marking ‘tax week’
Brady’s two tax measures are part of a GOP package of “tax week” bills focused on tax breaks and the Internal Revenue Service, which has been under fire over the past year for targeting Tea Party and other conservative groups.
A more sweeping plan to lower rates and remove tax breaks has long been on hold in Congress, where every tax deduction, from home mortgage interest to health insurance, has a well-entrenched constituency.
Despite the institutional resistance, Brady said he sees progress in Thursday’s votes, even if Democrats see the GOP victory in the House as largely symbolic.
An earlier tax overhaul produced by the Ways and Means Committee, Brady said, “made tax reform inevitable. It is going to happen. The only question now is how and when.”