EDITOR'S NOTE: Under the final tax bill, agreed to after this article was published, losses from wildfires and other natural disasters are no longer deductible absent a federal disaster declaration.
With wildfires destroying hundreds of homes as they rampage across Southern California this week, Democrats are again chastising Republicans for eliminating a natural disaster deduction from the tax reform bill that the House passed last month.
The House bill, approved on Nov. 16, removes the deduction for personal losses from wildfires, earthquakes, hurricanes and other natural disasters not covered by insurance or other assistance. Victims of major disasters could still get tax breaks provided Congress passes special legislation particular to the disaster.
Several fires have been raging in the greater Los Angeles area down to San Diego, threatening lives, homes and businesses. They are being driven by dry conditions and the Santa Ana winds, forcing 190,000 to evacuate, shutting down highways and suspending Amtrak service. Overall, the state has faced one of its most destructive and deadly fire seasons in history.
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“The situation is unpredictable and stressful, and safety is the foremost concern,” said Democratic Rep. Grace Napolitano of Norwalk. “It is unreasonable to think those suffering losses from these natural disasters might not be compensated should the Republican tax bill become law. This is absolutely heartless and must be fixed.”
The new fires are blazing just as insurance claims from the state’s wine country fires in the fall reached more than $9 billion, the bulk of it from hard-hit Santa Rosa, making those fires the costliest in California’s history. Forty-four people died and thousands of homes were destroyed.
The mayor of Santa Rosa, Chris Coursey, called the elimination of the natural disaster deduction “unfathomably bad.” Santa Rosa continues to deal with the state’s worst fire disaster, he said.
“We’ve got a serious humanitarian disaster, a serious infrastructure disaster, a serious economic disaster that we’re facing over the next several years,” Coursey said.
Earlier, the state’s two Democratic senators, Dianne Feinstein and Kamala Harris, noted in a statement that the elimination of the tax deductions in the House bill — among many to make up for cuts in corporate rates and other changes — comes during the worst fire season in the state’s history.
“Asking victims of wildfires or earthquakes to suffer in order to pay for tax cuts for the rich is the height of cruelty,” they said.
Democrats questioned whether residents would to be able to determine their losses in time for this year’s taxes, though they would be able to file for an extension or file an amended return. And Democrats were crying foul over tax benefits that victims of hurricanes Harvey, Irma and Maria received but not those trying to rebuild from the recent wildfires.
“Our tax code shouldn’t pick winners and losers in natural disasters,” Feinstein and Harris said. “This is just another example of the extraordinary lengths Republicans will go to cut taxes for wealthy corporations and individuals at the expense of middle-class families.”
Coursey criticized Republicans for singling out California, a blue state unlike Florida, Texas and other states hard hit by the hurricanes.
“I don’t know how anyone in Congress can justify taking on the victims of a disaster at a time like this,” he said.
Texas Rep. Kevin Brady, the Republican chairman of the House Ways and Means Committee, has said that he plans to introduce legislation offering special tax relief for wildfire victims, too.
“I am focused on securing funding for those impacted by this year’s devastating storms and wildfires while also working to wrap up the most transformational tax reform bill in a generation,” he said in a statement on Thursday.
Current law allows deductions for uncovered losses if the amount exceeds 10 percent of one’s income.
Congress earlier this year waived the 10 percent requirement for the hurricane victims and allowed them to withdraw money from their 401K retirement funds without penalty, among other benefits.
The Senate tax reform bill retains a deduction but only for federally declared natural disasters.
President Donald Trump on Friday declared a state of emergency over the fires, which allows for federal money to fight the fires. That is separate from a major disaster declaration, which would required under the proposed Senate bill and which would provide assistance for emergency and permanent recovery work.
Because wildfires often are smaller than other natural disasters and do not receive a federal designation, the elimination of the deduction would hurt California in particular. Feinstein's office points out that of the 57,981 wildfires in the United States this year, only the October fires in California have received a federal disaster declaration so far, according to data from the Federal Emergency Management Agency and the National Interagency Fire Center.
But the other fires are just as devastating to those affected, lawmakers noted.
“Republicans have said that Americans should not be concerned about this change because if there is a major disaster, then Congress might pass a special bill to provide tax breaks,” Democratic Rep. Brad Sherman, of Sherman Oaks, said. “If your home burns down without it being part of a major disaster – Congress won’t act. And if there is a major disaster – Congress might not act.”
Americans deducted $1.6 billion in 2015 for natural disaster losses, according to the IRS. The Treasury Department estimated that taxpayers would deduct $4.83 billion in losses beginning next year through 2027.
“LA County has over 11 million residents, and we have recently experienced the worst years of wildfires in our history,” Napolitano said. “My district includes the Foothills of the San Gabriel Mountains, where three major fires over the past eight years have displaced residents, destroyed properties, and disrupted life in our communities. Financial relief has been vital for the recovery efforts of my constituents and the millions who have suffered from natural disasters nationwide.”
The House and Senate must reconcile their two tax bills before a final version is sent to President Donald Trump. Republicans have said they want a bill by the end of the year.