tax

Jan. 8 (UPI) — Seventeen House Republicans joined their Democratic colleagues Thursday evening to pass legislation that extends Affordable Care Act premium tax credits for three years.

The House lawmakers voted 230-196 in favor of House Bill 1834, known as Breaking the Gridlock Act, sending it to the Senate where passage is anything but assured. The Senate already shot down the proposal last month. President Donald Trump would also have to sign it.

“We did it!” Rep. Lauren Underwood, D-Ill., said in a recorded statement following the bill’s passing.

“And, honestly, I’m just a little bit hopeful that we might be able to get this across the finish line and save our healthcare.”

Affordable Care Act premium tax credits have greatly reduced the costs of healthcare coverage for more than 20 million people annually. The tax credits expired at the turn of the new year, setting the stage for premiums to double for millions of people.

Debate over how to address the expiration of premium tax credits was a key point of contention during the record 43-day government shutdown that ensued in October.

Nine Republicans broke from party leadership on Wednesday to join Democrats in forcing a vote on the House floor with a rarely used discharge petition after House Republicans prevented it from moving forward. Only four Republicans pushed for a floor vote last month when lawmakers tried to pass an extension before the end-of-year deadline.

House Minority Leader Hakeem Jeffries, D-N.Y., who had expected the extension to pass, applauded his party for standing strong on their months-long commitment to “fix our broken healthcare system and address the Republican healthcare crisis, beginning with the extension of the Affordable Care Act tax credits.”

To reporters after the vote, Jeffries called on Senate Majority Leader John Thune, R-S.D., to “immediately” bring the bill up for a vote and “stop playing procedural games that are jeopardizing the health, the safety and the well-being of the American people.”

Rep. Rob Bresnahan Jr. of Pennsylvania was one of the 14 Republicans to vote “yes” to H.B. 1834. In a statement, the junior House member criticized the Affordable Care Act, which is frequently called Obamacare, for allegedly failing to deliver on its promise to lower insurance costs.

“But the only thing worse than a three-year extension of these credits is to let them expire with no solution or off-ramp,” he said.

“I voted for this because, as of right now, it is the only path forward that keeps discussion alive to protect the 28,000 people in my district from immediate premium spikes.”

Rep. Mike Lawler, R-N.Y., is among the Republicans who supported voting on an extension last month. He said ahead of the vote that House members have been working with members of the Senate on a proposal that could pass through with reforms.

“We’ve been working with senators for weeks,” Lawler said. “I think that’s ultimately where we can get.”

Italy called on Wednesday in a letter to EU’s Agriculture Commissioner ChristopheHansen to lift the bloc’s carbon border tax in order to ease pressure on fertilizer prices for European farmers. The date for the Mercosur signature is still not clear.

Expectations for Rome to greenlight the trade deal had risen in Brussels after European Commission President Ursula von der Leyen pledged on Tuesday to unlock additional funding for farmers to the tune of €45 billion as soon as 2028 in a designed to sway the pivotal support of the Italian government in favour of the deal.

“If in today’s meeting these conditions are certified by the Commission, Italy will support the deal (Mercosur),” Meloni’s agriculture minister Francesco Lollobrigida told reporters in Brussels.

Italy’s request comes as the Commission convened EU agriculture ministers in Brussels on Wednesday for talks on the future Common Agricultural Policy funding -a key piece of the common budget and highly sensitive to domestic politics – and reciprocity in production standards between Latin America and Europe, a key French demand.

France still opposes the Mercosur deal.

Farmers furious as Mercosur enters final stretch

The Mercosur agreement would create a free-trade area between Latin America, including heavyweight economy Brazil and the EU, cutting tariffs across sectors the board for European companies but also opening market access to Latin America.

Italian farmers, alongside France, Poland and Ireland, fear the deal with Argentina, Brazil, Paraguay and Uruguay will expose them to unfair competition.

Italy’s backing of the deal is essential to reach a qualified majority of member states needed to support it, or a blocking minority as a tiebreaker.

This is a developing story.

The fiery debate about a proposed ballot measure to tax California’s billionaires has sparked some soul-searching across the state.

While the idea of a one-time tax on more than 200 people has a long way to go before getting onto the ballot and would need to be passed by voters in November, the tempest around it captures the zeitgeist of angst and anger at the core of California. Silicon Valley is minting new millionaires while millions of the state’s residents face the loss of healthcare coverage and struggle with inflation.

Supporters of the proposed billionaire tax say it is one of the few ways the state can provide healthcare for its most vulnerable. Opponents warn it would squash the innovation that has made the state rich and prompt an exodus of wealthy entrepreneurs from the state.

The controversial measure is already creating fractures among powerful Democrats who enjoy tremendous sway in California. Progressive icon Sen. Bernie Sanders (I-Vt.) quickly endorsed the billionaire tax, while Gov. Gavin Newsom denounced it .

The Golden State’s rich residents say they are tired of feeling targeted. Their success has not only created unimaginable wealth but also jobs and better lives for Californians, they say, yet they feel they are being punished.

“California politics forces together some of the richest areas of America with some of the poorest, often separated by just a freeway,” said Thad Kousser, a political science professor at UC San Diego. “The impulse to force those with extreme wealth to share their riches is only natural, but often runs into the reality of our anti-tax traditions as well as modern concerns about stifling entrepreneurship or driving job creation out of the state.”

The state budget in California is already largely dependent on income taxes paid by its highest earners. Because of that, revenues are prone to volatility, hinging on capital gains from investments, bonuses to executives and windfalls from new stock offerings, and are notoriously difficult for the state to predict.

The tax proposal would cost the state’s richest residents about $100 billion if a majority of voters support it on the November ballot.

Supporters say the revenue is needed to backfill the massive federal funding cuts to healthcare that President Trump signed this summer. The California Budget & Policy Center estimates that as many as 3.4 million Californians could lose Medi-Cal coverage, rural hospitals could shutter and other healthcare services would be slashed unless a new funding source is found.

On social media, some wealthy Californians who oppose the wealth tax faced off against Democratic politicians and labor unions.

An increasing number of companies and investors have decided it isn’t worth the hassle to be in the state and are taking their companies and their homes to other states with lower taxes and less regulation.

“I promise you this will be the final straw,” Jessie Powell, co-founder of the Bay Area-based crypto exchange platform Kraken, wrote on X. “Billionaires will take with them all of their spending, hobbies, philanthropy and jobs.”

Proponents of the proposed tax were granted permission to start gathering signatures Dec. 26 by California Secretary of State Shirley Weber.

The proposal would impose a one-time tax of up to 5% on taxpayers and trusts with assets, such as businesses, art and intellectual property, valued at more than $1 billion. There are some exclusions, including property.

They could pay the levy over five years. Ninety percent of the revenue would fund healthcare programs and the remaining 10% would be spent on food assistance and education programs.

To qualify for the November ballot, proponents of the proposal, led by the Service Employees International Union-United Healthcare Workers West, must gather the signatures of nearly 875,000 registered voters and submit them to county elections officials by June 24.

The union, which represents more than 120,000 healthcare workers, patients and healthcare consumers, has committed to spending $14 million on the measure so far and plans to start collecting signatures soon, said Suzanne Jimenez, the labor group’s chief of staff.

Without new funding, the state is facing “a collapse of our healthcare system here in California,” she said.

Rep. Ro Khanna (D-Fremont) spoke out in support of the tax.

“It’s a matter of values,” he said on X. “We believe billionaires can pay a modest wealth tax so working-class Californians have the Medicaid.”

The Trump administration did not respond to requests for comment.

The debate has become a lightning rod for national thought leaders looking to target California’s policies or the ultra-rich.

On Tuesday, Sanders endorsed the billionaire tax proposal and said he plans to call for a nationwide version.

“This is a model that should be emulated throughout the country, which is why I will soon be introducing a national wealth tax on billionaires,” Sanders said on X. “We can and should respect innovation, entrepreneurship and risk-taking, but we cannot respect the extraordinary level of greed, arrogance and irresponsibility that is currently being displayed by much of the billionaire class.”

But there isn’t unanimous support for the proposal among Democrats.

Notably, Newsom has consistently opposed state-based wealth taxes. He reiterated his opposition when asked about the proposed billionaires’ tax in early December.

“You can’t isolate yourself from the 49 others,” Newsom said at the New York Times DealBook Summit. “We’re in a competitive environment. People have this simple luxury, particularly people of that status, they already have two or three homes outside the state. It’s a simple issue. You’ve got to be pragmatic about it.”

Newsom has opposed state-based wealth taxes throughout his tenure.

In 2022, he opposed a ballot measure that would have subsidized the electric vehicle market by raising taxes on Californians who earn more than $2 million annually. The measure failed at the ballot box, with strategists on both sides of the issue saying Newsom’s vocal opposition to the effort was a critical factor.

The following year, he opposed legislation by a fellow Democrat to tax assets exceeding $50 million at 1% annually and taxpayers with a net worth greater than $1 billion at 1.5% annually. The bill was shelved before the legislature could vote on it.

The latest effort is also being opposed by a political action committee called “Stop the Squeeze,” which was seeded by a $100,000 donation from venture capitalist and longtime Newsom ally Ron Conway. Conservative taxpayer rights groups such as the Howard Jarvis Taxpayers Assn. and state Republicans are expected to campaign against the proposal.

The chances of the ballot measure passing in November are uncertain, given the potential for enormous spending on the campaign — unlike statewide and other candidate races, there is no limit on the amount of money donors can contribute to support or oppose a ballot measure.

“The backers of this proposed initiative to tax California billionaires would have their work cut out for them,” said Kousser at UC San Diego. “Despite the state’s national reputation as ‘Scandinavia by the Sea,’ there remains a strong anti-tax impulse among voters who often reject tax increases and are loath to kill the state’s golden goose of tech entrepreneurship.”

Additionally, as Newsom eyes a presidential bid in 2028, political experts question how the governor will position himself — opposing raising taxes but also not wanting to be viewed as responsible for large-scale healthcare cuts that would harm the most vulnerable Californians.

“It wouldn’t be surprising if they qualify the initiative. There’s enough money and enough pent-up anger on the left to get this on the ballot,” said Dan Schnur, a political communications professor who teaches at USC, Pepperdine and UC Berkeley.

“What happens once it qualifies is anybody’s guess,” he said.

Lorena Gonzalez, president of the California Federation of Labor Unions, called Newsom’s position “an Achilles heel” that could irk primary voters in places like the Midwest who are focused on economic inequality, inflation, affordability and the growing wealth gap.

“I think it’s going to be really hard for him to take a position that we shouldn’t tax the billionaires,” said Gonzalez, whose labor umbrella group will consider whether to endorse the proposed tax next year.

California billionaires who are residents of the state as of Jan. 1 would be impacted by the ballot measure if it passes . Prominent business leaders announced moves that appeared to be a strategy to avoid the levy at the end of 2025. On Dec. 31, PayPal co-founder Peter Thiel announced that his firm had opened a new office in Miami, the same day venture capitalist David Sacks said he was opening an office in Austin.

Wealth taxes are not unprecedented in the U.S. and versions exist in Switzerland and Spain, said Brian Galle, a taxation expert and law professor at UC Berkeley.

In California, the tax offers an efficient and practical way to pay for healthcare services without disrupting the economy, he said.

“A 1% annual tax on billionaires for five years would have essentially no meaningful impact on their economic behavior,” Galle said. “We’re funding a way of avoiding a real economic disaster with something that has very tiny impact.”

Palo Alto-based venture capitalist Chamath Palihapitiya disagrees. Billionaires whose wealth is often locked in company stakes and not liquid could go bankrupt, Palihapitiya wrote on X.

The tax, he posted, “will kill entrepreneurship in California.”

Ex-Gov. Jim Guy Tucker’s ex-business partner pleaded guilty to a Whitewater fraud charge that accused him and Tucker of arranging a sham bankruptcy that saved them $2 million in taxes. Boston businessman William J. Marks Sr. said Tucker and Tucker’s lawyer–who are scheduled for trial this winter–used falsified documents to understate the value of cable television systems Marks and the former governor owned in Texas and Florida. Marks told U.S. District Judge Stephen M. Reasoner in Little Rock, Ark., he had full knowledge of the plan. Tucker, then governor, was sentenced to 18 months’ home detention after being convicted in a separate Whitewater case last year.

Dec. 28 (Asia Today) — Hanyang University business professor Lee Woong-hee said South Korean companies face structural disadvantages versus fast-rising Chinese rivals, citing China’s lack of inheritance and gift taxes and fewer work stoppages tied to strikes.

In a column, Lee said many in South Korea view China as a socialist system with low economic freedom, but argued Beijing has increasingly tolerated business autonomy since its “reform and opening-up” era. He pointed to China’s 2004 constitutional recognition of private property rights as an example of what he described as a bold shift, even though the state retains land ownership.

Lee argued China has absorbed Western institutions such as private property rights and joint-stock companies into its system, rebranding them as “new socialism,” and said Chinese scholars have promoted theoretical justifications for that approach.

Lee said China holds advantages that South Korean firms do not, starting with taxation. He wrote that China does not currently levy inheritance, estate or gift taxes, unlike South Korea, where high inheritance and gift tax burdens can pressure founders to sell companies rather than pass them on to heirs.

He also said China faces fewer production disruptions from strikes. Lee noted China removed the right to strike from its 1982 constitution and allows only the All-China Federation of Trade Unions as a legal union structure, limiting independent organizing.

While acknowledging an increase in labor disputes, Lee cited reports estimating 1,509 labor incidents in 2024 and argued they remained relatively small-scale and dispersed, with authorities preventing wider escalation.

Beyond taxes and labor, Lee said China benefits from deeper pools of engineering talent and stronger industrial support. He also argued South Korea’s industrial electricity rates are significantly higher than China’s, and said Beijing offers broad policy backing for strategic industries.

Lee wrote that China’s startup momentum appears stronger, citing surveys suggesting higher startup rates among Chinese graduates and pointing to global rankings that placed Beijing among leading startup cities. He said China ranks second globally in the number of unicorn companies after the United States.

Lee concluded that China’s older socialist traits appear to be fading and that its entrepreneurial culture is reasserting itself, arguing it may only be a matter of time before China becomes more business-friendly than South Korea.

— Reported by Asia Today; translated by UPI

© Asia Today. Unauthorized reproduction or redistribution prohibited.

Caption:Professor Lee Woong-hee of Hanyang University’s business school. /Asia Today

Airports outside London are set to be ‘most extreme’ as they face ‘unprecedented’ rises

Air travellers are being urged to prepare for soaring ticket prices as regional airports throughout the UK brace for “unprecedented” property tax increases next year. An examination of official Government figures for the Press Association has shown that regional airports are among those confronting the sharpest business rates rises of any industry in the UK during a comprehensive overhaul of property assessments that determine the levy.

While London’s Heathrow and Gatwick are also being hammered with staggering business rates increases, the data reveals that the most severe cases are concentrated beyond London, with regional airports poised to bear the brunt. Global tax consultancy Ryan’s analysis of Valuation Office Agency (VOA) figures discovered that rateable values have rocketed more than six times over in certain instances during the latest property reassessment, causing tax demands to skyrocket.

Despite so-called transitional relief, which caps rises at 30% next year, regional airports will still face some of the most substantial cash hikes nationwide. The majority of airports will witness their bills more than treble over the coming three years.

Manchester Airport stands among the hardest hit, with its business rates demand poised to leap by £4.2 million to £18.1 million next year, Ryan’s figures show. Bristol Airport will experience a £1.2 million jump to £5.2 million, whilst Birmingham International Airport anticipates a £1.8 million surge to £7.6 million.

Newcastle International Airport faces a £244,755 rise to £1.1 million. Alex Probyn, who leads property tax practice for Europe and Asia-Pacific at Ryan, said: “With an unprecedented 295% sector-wide uplift, regional airports simply cannot absorb a cost shock of this magnitude. These increases will inevitably flow through the system: first into airport charges, then into airline costs, and ultimately into ticket prices.”

Airport operators have raised concerns that this tax hike could stifle investment in the sector.

A spokesperson from Manchester Airports Group said: “Airports were already some of the highest rates-payers in the country and were prepared to pay significantly more. But increases of more than 100% mean we have to look again at our plans to invest more than £2 billion in our airports across the UK over the next five years.

“It is inevitable air travel will become more expensive as the industry absorbs these costs. That impacts hard-working people throughout the country and makes global trade harder for businesses.”

AirportsUK, the trade group representing the sector, is formulating a response to the Treasury’s consultation on the business rates plan, which concludes in February. It criticised the plans as “short-sighted” and warned they will “have a knock-on effect for the businesses that depend on airport connectivity in all areas of England”. This threatens to “negatively impacting local economies that depend on the supply chains, tourists and connections their airports provide”, the organisation warned.

The group emphasised the significance of government intervention: “That is why the long-term review into how airport business rates are calculated, also announced by Government, is so important and we will engage with Treasury to ensure this delivers the positive outcome airports need to drive investment and economic growth.”

Additional regional airports bracing for colossal rate hikes include Liverpool Airport facing a £233,100 surge to £1 million, East Midlands International Airport confronting a £437,895 leap to £1.9 million and Bournemouth Airport dealing with a £102,398 jump to £443,723.

Reporting from Sacramento — As a new poll found a majority of California voters want to repeal increases to the state’s gas tax and vehicle fees, Gov. Jerry Brown has begun campaigning to preserve them, arguing the sacrifice is needed to fix long-neglected roads and bridges and improve mass transit.

Repeal of the higher taxes and fees was supported by 51% of registered voters in the state, according to a new USC Dornsife/Los Angeles Times statewide poll.

The survey found 38% of registered voters supported keeping the higher taxes, 9% hadn’t heard enough to say either way and 2% said they wouldn’t vote on the measure.

The results bode well for a measure that Republican members of Congress hope to place on the November statewide ballot that could boost turnout of GOP voters by offering the chance to repeal the gas tax increase, said Bob Shrum, director of the Jesse M. Unruh Institute of Politics at USC.

“If it qualifies for the ballot it will be, I suspect, very hard to sustain it,” Shrum said of the tax. “It’s almost dead.”

At issue is Senate Bill 1, approved by the Legislature and governor in April 2017. It raised the gas tax by 12 cents per gallon, boosted the diesel fuel tax by 20 cents per gallon and increased vehicle fees. The new charges will raise $5.4 billion annually for road and transit projects.

In launching a campaign to preserve the taxes, Brown has come out swinging, calling the proposed repeal initiative “devious and deceptive” in a speech Friday to Southern California transportation leaders.

“The test of America’s strength is whether we defeat this stupid repeal measure, which is nothing more than a Republican stunt to get a few of their losers returned to Congress, and we’re not going to let that happen,” Brown told the transportation officials at Union Station in Los Angeles.

The California Transportation Commission has so far allocated $9.2 billion for transportation projects throughout California as a result of SB 1.

The governor’s comments drew a sharp rebuke as “disgraceful name-calling” from Carl DeMaio, a Republican leader of the initiative drive who is a former member of the San Diego City Council.

The poll results are encouraging, he said.

New poll finds a volatile race for second place »

“It just goes to show you that in order for Gov. Jerry Brown and his backers to prevail in keeping the tax in place they are going to have to pull out all stops, and the level of dishonesty is going to be breathtaking,” DeMaio said.

The governor and other supporters of the tax “might have a chance” to succeed, Shrum said, if they make the question about safe bridges, fixing the state’s crumbling roads and boosting the economy.

That is the tactic that seems to be emerging.

Caltrans officials held a news conference Tuesday in Oxnard to announce $68.6 million in SB 1 funds to build an overpass for Rice Avenue over busy rail tracks.

The project will end delays as cars wait for trains to pass and make safer an intersection that has been identified as one of the most dangerous in the state, officials said.

Brown had planned to attend the Oxnard event, but his flight from Sacramento was delayed. The governor plans similar events throughout the state, aides said, and he made his case to reporters in a conference call.

“It’s great to recognize this, one of many projects that SB 1 is going to finance,” Brown said. “It’s going to save lives. It’s going to make commuting and traveling easier and safer.”

That supporters of the tax are addressing voters outside of Los Angeles and San Francisco is also noteworthy. The poll found only 44% of voters in Los Angeles want to repeal the tax, but the number goes to 55% in the suburbs, 56% in the state’s Central Valley and 64% in Orange and San Diego counties and the Inland Empire.

Shrum said supporters of the tax should be concerned about the level of opposition by voters, including the poll findings that half of Latino voters want to repeal the taxes. “That’s not a promising number, given you have to use a Democratic base” to mount a campaign to keep the tax, he said.

“If Democrats are going to save this they are going to have to spend a lot of money,” Shrum added.

Coverage of California politics »

Hoping to boost turnout of GOP voters, Republican leaders providing major funding of the repeal initiative include House Speaker Paul D. Ryan of Wisconsin, House Majority Whip Steve Scalise of Louisiana and House Majority Leader Kevin McCarthy of Bakersfield, who, because he is poised to be the next speaker, has a lot on the line when it comes to who controls Congress.

The campaign against the initiative is backed by a coalition of deep-pocketed big businesses that often align with Republicans to fight higher taxes, and it also has support from labor, law enforcement and cities.

The “Fix Our Roads” coalition fighting repeal includes the Los Angeles Area Chamber of Commerce, the Bay Area Council, the Silicon Valley Leadership Group, the League of California Cities, the State Building & Construction Trades Council of California and the California Assn. of Highway Patrolmen.

A political committee set up to fight any attempt to repeal the gas tax has raised more than $1 million so far.

The poll did not shake the confidence of anti-repeal coalition leader Michael Quigley, executive director of the California Alliance for Jobs.

“This campaign will be about whether voters want to rip away thousands of local projects, whether they want unsafe, congested roads, and whether they want to let partisan politicians take us backward,” Quigley said.

The governor’s leading role could help to keep the gas tax on the books, but his ability to assist is limited, said Mike Murphy, a Republican strategist and consultant to the poll. “The governor’s numbers aren’t what they used to be.”

The poll found that 48% of voters approved of the job Brown has done and 40% disapproved.

The online survey was conducted from April 18 to May 18 and included 691 registered voters. The overall margin of sampling error is plus or minus 4 percentage points.

Jill Darling, survey director of the USC Dornsife Center for Economic and Social Research, contributed to this report.

patrick.mcgreevy@latimes.com

Twitter: @mcgreevy99

UPDATES:

10:15 a.m.: This article was updated with revised figures from state officials who reported that the California Transportation Commission has allocated a total of $9.2 billion from SB 1 funds for transportation projects.

This article was originally published at 12:05 a.m.

christine.maiduc@latimes.com

For more on California politics, follow @cmaiduc.

ALSO

Updates on California politics

UPDATES:

2 p.m.: This article was updated to clarify that Fight Back California is targeting 30,000 voters in each of the seven districts.

This article was originally published at 3 a.m.

HONOLULU — A federal judge’s ruling clears the way for Hawaii to include cruise ship passengers in a new tourist tax to help cope with climate change, a levy set to go into effect at the start of 2026.

U.S. District Judge Jill A. Otake on Tuesday denied a request seeking to stop officials from enforcing the new law on cruises.

In the nation’s first such levy to help cope with a warming planet, Hawaii Gov. Josh Green signed legislation in May that raises tax revenue to deal with eroding shorelines, wildfires and other climate problems. Officials estimate the tax will generate nearly $100 million annually.

The levy increases rates on hotel room and vacation rental stays but also imposes a new 11% tax on the gross fares paid by a cruise ship’s passengers, starting next year, prorated for the number of days the vessels are in Hawaii ports.

Cruise Lines International Assn. challenged the tax in a lawsuit, along with a Honolulu company that provides supplies and provisions to cruise ships and tour businesses out of Kauai and the Big Island that rely on cruise ship passengers. Among their arguments is that the new law violates the Constitution by taxing cruise ships for the privilege of entering Hawaii ports.

Plaintiff lawyers also argued that the tax would hurt tourism by making cruises more expensive. The lawsuit notes the law authorizes counties to collect an additional 3% surcharge, bringing the total to 14% of prorated fares.

“Cruise tourism generates nearly $1 billion in total economic impact for Hawai‘i and supports thousands of local jobs, and we remain focused on ensuring that success continues on a lawful, sustainable foundation,” association spokesperson Jim McCarthy said in a statement.

According to court records, plaintiffs will appeal. They asked the judge to grant an injunction pending an appeal and requested a ruling by Saturday afternoon, given that the law takes effect Jan. 1.

Hawaii will continue to defend the law, which requires cruise operators to pay their share of transient accommodation tax to address climate change threats to the state, state Atty. Gen. Anne Lopez said in a statement.

The U.S. government intervened in the case, calling the tax a “scheme to extort American citizens and businesses solely to benefit Hawaii” in conflict with federal law.

Kelleher writes for the Associated Press.

WASHINGTON — Treasury Secretary James A. Baker III faced open hostility to the Reagan Administration’s tax revision proposal Tuesday as the Senate Finance Committee began what is expected to be at least three months of testimony on overhauling the current tax code.

“The best simplification this committee could do for the country would be just to adjourn,” Sen. Steven D. Symms (R-Ida.) complained.

Senate Republican leader Bob Dole of Kansas, a committee member, conceded that progress on tax revision could be slow. “Once the initial glow has faded,” Dole said, “there are a lot of questions this committee has to deal with.”

Warning of ‘Fiscal Disaster’

Meanwhile, Martin S. Feldstein, former chairman of President Reagan’s Council of Economic Advisers, warned that the Administration’s tax proposal could be a “fiscal disaster if tax reform became a deficit-enlarging tax cut.”

Feldstein, who left the White House last year after several disputes over Administration policy toward budget deficits, told the House Ways and Means Committee that the tax proposal “is at best revenue neutral and has a substantial risk of losing revenue.”

Other economists testifying before the House panel, which originates tax legislation, also expressed skepticism over the Administration’s contention that the tax plan would raise as much revenue as the current tax system. They contended that the package could exacerbate deficits that are now expected to remain larger than $170 billion annually well into the next decade, even if the package of spending cuts now working its way through Congress becomes law.

“I suspect that the President’s proposal is a revenue loser, particularly after 1990,” said John H. Makin, director of fiscal studies at the American Enterprise Institute.

But Baker, in defending the tax proposal to the Senate panel, insisted that Reagan’s plan would lose only $11.5 billion during the next five years, substantially less than 1% of the $4.7 trillion that the government estimates it will collect in total revenues during that period.

Contradictory Attacks

In grilling Baker, senators on the tax panel attacked the White House proposal on a wide variety of sometimes contradictory points.

Sen. William V. Roth Jr. (R-Del.) complained that the proposal “tends to soak the middle class,” but he worried also that the plan would be too generous to consumers at the expense of those who save.

Some senators argued that the plan would do little to help businesses facing the threat of foreign competition, but others suggested that individuals should receive a more generous tax break even if it means increasing taxes for corporations.

Most members of the Republican-controlled committee warned that they would attempt to restore certain tax breaks that would be eliminated by the White House package.

In particular, they criticized Reagan’s proposals to abolish the deductions for state and local taxes and for two-earner couples, to eliminate the investment tax credit and alternative energy tax credits and to tax growth in the cash value of insurance policies. But Sen. Bill Bradley (D-N. J.), author of a separate tax revision proposal, argued that the White House tax plan does not go far enough in eliminating special tax preferences. He told Baker that he would try to eliminate some tax breaks for the oil industry and wealthy investors.

Exemption Hike Opposed

Sen. George J. Mitchell (D-Me.) challenged Baker’s contention that the best way to help families living below the poverty line to escape income taxes is to increase the personal exemption from the current $1,040 to $2,000 next year.

Mitchell said that he would introduce a proposal to limit the increase in the personal exemption and grant a larger increase than Reagan recommended in the standard deduction, or zero-bracket amount, a proposal that would help only taxpayers who do not itemize their deductions. Mitchell said that his approach would concentrate tax relief more directly on middle-income and lower-income families than would the Administration’s plan.

Baker vigorously defended the Administration’s plan against the attacks. “We think our plan is very fair,” he said, pointing out that the majority of taxpayers at every income level would receive tax reductions and that the average tax cut would be 7%.

JEFFERSON CITY, Mo. — To tax tips or not? That is a question that will confront lawmakers in states across the U.S. as they convene for work next year.

The Trump administration is urging states to follow its lead by enacting a slew of new tax breaks for individuals and businesses, including deductions for tips and overtime wages, automobile loans and business equipment.

In some states, the new federal tax breaks will automatically apply to state income taxes unless legislatures opt out. But in many other states, where tax laws are written differently, the new tax breaks won’t appear on state tax forms unless legislatures opt in.

In states that don’t conform to the federal tax changes, workers who receive tips or overtime, for example, will pay no federal tax on those earnings but could still owe state taxes on them.

States that adopt all of Trump’s tax cuts could provide hundreds of millions of dollars in annual savings to certain residents and businesses. But that could financially strain states, which are being hit with higher costs because of new Medicaid and SNAP food aid requirements that also are included in the GOP’s big bill that Trump signed this summer.

Most states begin their annual legislative sessions in January. To retroactively change tax breaks for 2025, lawmakers would need to act quickly so tax forms could be updated before people begin filing. States also could apply the changes to their 2026 taxes, a decision requiring less haste.

So far, only a few states have taken votes on whether to adopt the tax breaks.

“States in general are approaching this skeptically,” said Carl Davis, research director at the nonprofit Institute on Taxation and Economic Policy.

Treasury presses states to act

The bill Trump signed July 4 contains about $4.5 trillion of federal tax cuts over 10 years.

It creates temporary tax deductions for tips, overtime and loan interest on new vehicles assembled in the U.S. It boosts a tax deduction for older adults. And it temporarily raises the cap on state and local tax deductions from $10,000 to $40,000, among other things. The law also provides numerous tax breaks to businesses, including the ability to immediately write off 100% of the cost of equipment and research.

Forty-one states levy individual income taxes on wages and salaries. Forty-four states charge corporate income taxes.

Treasury Secretary Scott Bessent this month called on those states “to immediately conform” to the federal tax cuts and accused some Democratic-led states that haven’t done so of engaging in “political obstructionism.” Though Bessent didn’t mention it, many Republican-led states also have not decided whether to implement the tax deductions.

“By denying their residents access to these important tax cuts, these governors and legislators are forcing hardworking Americans to shoulder higher state tax burdens, robbing them of the relief they deserve and exacerbating the financial squeeze on low- and middle-income households,” Bessent said.

Some tax analysts contend that there’s more for states to consider. The tax break on tips, for example, could apply to nearly 70 occupational fields under a proposed rule from the Internal Revenue Service. But that would still exclude numerous low-wage workers, said Jared Walczak, vice president of state projects at the nonprofit Tax Foundation.

“Lawmakers need to consider whether these are worth the cost,” Walczak said.

Tips and overtime tax breaks

Because of the way state tax laws are written, the federal tax breaks for tips and overtime wages would have carried over to just seven states: Colorado, Idaho, Iowa, Montana, North Dakota, Oregon and South Carolina. But Colorado opted out of the state tax break for overtime shortly before the federal law was enacted.

Michigan this fall became the first — and so far only — state to opt into the tax breaks for tips and overtime wages, effective in 2026. The overtime tax exemption is projected to cost the state nearly $113 million and the tips tax break about $45 million during its current budget year, according to the state treasury department.

Michigan lawmakers offset that by decoupling from five federal corporate tax changes the state’s treasury estimated would have reduced state tax revenues by $540 million this budget year.

Republican state Rep. Ann Bollin, chair of the Michigan House Appropriations Committee, said the state could not afford to embrace all the tax cuts while still investing in better roads, public safety and education.

“The best path forward is to have more money in people’s pockets and have less regulation — and this kind of moved in that direction,” she said.

Arizona could be among the next states to act. Democratic Gov. Katie Hobbs has called upon lawmakers to adopt the tax breaks for tips, overtime, seniors and vehicle loans, and follow the federal government by also increasing the state’s standard deduction for individual income taxpayers. Republican state House leaders said they stand ready to pass the tax cuts when their session begins Jan. 12.

Corporate tax breaks

In addition to Michigan, lawmakers in Delaware, Illinois, Pennsylvania and Rhode Island have passed measures to block some or all of the corporate tax cuts from taking effect in their states.

A new Illinois law decoupling from a portion of the corporate tax changes could save the state nearly $250 million, said Democratic state Sen. Elgie Sims, chair of the Senate Appropriations Committee. He said that could help ensure continued funding for schools, healthcare and other vital services.

Illinois Gov. JB Pritzker, an outspoken Democratic opponent of Trump, also cited budget concerns for rejecting the corporate tax cut provision. He said states already stand to lose money because of other provisions in Trump’s big bill, such as a requirement to cover more of the costs of running the Supplemental Nutrition Assistance Program, known as SNAP.

“The decoupling is an effort to try to hold back the onslaught from the federal government to make sure that we can support programs like the one we’re announcing today,” Pritzker told reporters at a December event publicizing a grant to address homelessness in central Illinois.

Lieb writes for the Associated Press. AP writer John O’Connor in Springfield, Ill., contributed to this report.