Rep. Jim Banks, R-Ind., spoke to The Daily Signal’s Genevieve Wood earlier this month, before the tax reform bill passed the House, about how eliminating the state and local tax deduction will benefit middle- and working-class families. Below is a transcript of the conversation, edited for style and clarity:

Wood: So, tax reform, as many of the folks out there know, that’s been one of the top stories coming off the Hill. We are going to get into some of the specifics, but let me first ask: Are you excited about the tax reform package the House has put together?

Banks: I am. As you know, Genevieve, I served in the state Senate for six years in Indiana before I came here. And we had historic tax cuts, we eliminated the death tax in Indiana, we reduced substantially the corporate tax rate in the state of Indiana. We saw the benefit from it in our state and largely the plan that’s been introduced that we’re debating in Congress looks a lot like what Hoosiers enacted over the past few years. We’ve reaped the benefit of that, businesses have moved to Indiana, the economy has grown, unemployment is historically low in our state. So Hoosiers know what happens when you cut taxes and they want to see it happen again at the federal level.

Wood: Now I’m gonna guess you had people though in Indiana on the other side saying this is gonna be bad for the economy, it’s gonna be bad for the state. Were people concerned about that when you first put it through?

Banks: They were and it took a lot of political action by Gov. [Mitch] Daniels and then Gov. [Mike] Pence in our state to make it happen. We had a supermajority, Republican majorities in the state House and Senate. But overall, Hoosiers reacted well when they saw tax cuts, when they saw more good-paying jobs in the economy. Gov. Daniels was always fond of saying that when in Indiana, living next door to Illinois was like living next to the Simpsons.

Wood: No offense to our viewers out there in Illinois, of course.

Banks: Well, it should be a little bit because it meant when we cut our tax, when we cut our corporate tax rate in Indiana, Illinois raised theirs, and we saw dozens of major businesses and a lot of jobs move from Illinois to Indiana to take advantage of it. That’s what’s going to happen in America if we reduce corporate tax rates from 35 to 20 percent, middle-class tax cuts for working-class families. We’re going to make America competitive again and see investment come from other countries back to the United States. That’s exciting, that’s exciting as a new member of Congress to be a part of that.

Wood: So one of the things that’s been talked about is this whole idea about what to do about state and local deductions. I’m sure many of you have been hearing about this conversation going back and forth as well. You have folks in high-tax states, states that have high state income taxes or high property taxes, they don’t want to get rid of this deduction. But a lot of states that have lower taxes say, yeah, we should be getting rid of it. First of all, explain how that works and why it’s important.

Banks: Well, as a conservative, we should look at the elimination of the state and local tax deduction as good public policy. It’s not just about making an offset for tax reform, which we have to do with the reconciliation rules in the Congress. This is good public policy because in states like Indiana where we have low state tax rates and low local tax rates as well, we shouldn’t subsidize states like New York who have bloated government at the local and state levels.

So this is good public policy, but also helps make up that difference to get to revenue neutrality and get the numbers right to pass it through with reconciliation. But, you look at what we do currently with the state and local tax deduction for high-income, wealthy individuals to write off bloated local and state government in states like New York and California. Hoosiers shouldn’t pay for that. That’s why I support it as good public policy and not just as part of a trade-off, a pay-for as it is in the legislation today.

Wood: So for people who say what is this exactly, how does this work? Basically, if you live in New York and you have a high state income tax, the folks who live there, they actually itemize on their taxes, they can deduct that local tax and state tax from their federal bill. If you are in Indiana, your taxes aren’t that high so you don’t get that kind of deduction. You talked about the trade-off here—it’s over a trillion dollars is my understanding that we end up not taking in—because we allow these folks to do that kind of write-off.

Banks: That’s right. The legislation that [House Ways and Means Chairman Kevin Brady proposes], the piece of legislation that’s working its way through, still allows for a $10,000 property tax deduction, so there still is room there for deduction of property taxes in those states. But overall, this is bad public policy; we shouldn’t reward big government and the policies of big government states like New York and California.

My friends on both sides of the aisle who are opposed to eliminating the SALT [state and local tax] deduction in the Congress, especially their constituents in their states, they should want more efficient and more affordable local and state government as well. Ultimately, they might not know that they want it, but eventually they’re going to realize that eliminating the SALT deduction is good for them, good for taxpayers as well.

Wood: And it might very well then force their state governments to start lowering their taxes because they’re gonna get that kind of pressure. One aspect of this is how it would affect real estate and people who want to buy homes. Families out there, they say, “OK, well, if I am a homeowner or want to become a homeowner, how would this affect me?” The National Realtors Association has been sending a lot of lobbyists to Capitol Hill, saying, “We want to keep the state and local deduction.” You have a real estate background, you’re saying that’s not the right thing. Explain that for us.

Banks: Well, first of all, it’s a significant tax cut and more families, especially a lot of working-class families, are going to have more money in the bottom line of their bank accounts at the end of the year, seeing the tax cut add to their bottom line. But [they will] also see wages rise, that’s going to give families more money to buy homes and to invest in their homes, and that’s good for the housing economy as well.

But there’s also another aspect of tax reform, that’s the mortgage interest deduction and capping that at $500,000 is worrisome to the homebuilders and the realtors. But overall, we have to look at the bigger picture. The bigger picture of raising, doubling the standard deduction of joint filers and single filers to $24,000 for joint filers and $12,000 for single filers. That’s a big tax cut that’s going to give individuals and families more room to invest in homes and in their current homes.

Wood: And really, middle-class families. Because when you talk about a $500,000 mortgage interest deduction, a lot of folks have homes that don’t cost $500,000. So it’s really people in those higher-income brackets, or more expensive homes, that might still be paying, or not getting the break they’ve been getting. Is that correct?

Banks: That’s exactly right. So, a lot of these issues are bound to change, especially with the influence of special-interest groups on Capitol Hill that are trying to impact this legislation. But we’ve got to look at the bigger picture. The bigger picture is that this is really good for middle-income, middle-class families. It’s going to put more money in their pockets to invest. A $1.5 trillion tax cut, that’s going to put money back into the economy, that will grow the economy, get us back to 3 or 4 percent [gross domestic product] growth for the foreseeable future. That’s good for the economy, it’s good for homebuilders, it’s good for Realtors, it’s good for the consumers and local businesses in our local economy. So that’s going to create more good-paying jobs.

Wood: You’re going to vote, hopefully, next week sometime. Then the Senate is going to take up their aspect of it. What are you looking for in the next few weeks? I know you all want to get something passed and to the president before the end of the year. How do you see it playing out?

Banks: When I go back to Northeast Indiana and speak to my constituents, they’re still deeply upset about what happened with repealing Obamacare and the lack of action on doing something about the catastrophe that is the health care system as it is today. So I’m a little bit concerned about what happens when the legislation goes to the Senate.

I think a lot of us are worried about what that will look like. But right now there is broad support in the Republican conference in the House, from the Tuesday Group moderate Republican faction to the Republican Study Committee and Freedom Caucus on the right and those in the middle. So I am optimistic that we’ll do our part in the House, pass it hopefully by the end of next week before Thanksgiving. And then let the Senate do their work, hopefully, and have something go to the president for his signature by the end of the year.

Wood: Do you expect to get any Democratic colleagues to come alongside you and vote for the tax reform?

Banks: I might be in the minority in this thinking, but I really do. I don’t know, for example, how Sen. Joe Donnelly from Indiana, who bills himself as a moderate Democrat who’s on the ballot next year, will face the voters next year. I don’t know how he can afford to vote against a significant tax cut for middle-class families, to grow the economy. If he does vote against it—which will likely happen, again, by the end of the year—he’s going to see the impact next year in an election year and a lot of people, a lot of Hoosiers, will question why he voted against it. So there are a lot of Joe Donnellys in the Senate. A lot of Democrats who are on the ballot in contested races next year, a lot of House members as well who are Democrats that are facing tough elections. There’s gonna be a heck of a price to pay to vote against it.

Wood: Final question for you. Your constituents, I’m sure you’re hearing a lot from them. What are their main questions when they hear about tax reform? Because it is tax reform, it’s not just tax cuts, it’s reforming the system as well. What are your constituents asking and what are their main concerns?

Banks: I think they’re confused. They hear the rhetoric from the Nancy Pelosies and those on the left who want to change the subject and do everything they can to stop progress from those of us on the Republican side from doing what we said we would do. So when they hear the rhetoric, they’re confused. They know their taxes are too high, they know they spend, they give the government too much money at the local, state, and federal level. So automatically, they trust us, they know that we’re trying to do the right thing. But they have a lot of questions about what it would do for them.

And when we take the time to explain what doubling the standard deduction will do, what a $1.5 trillion tax cut will do for the economy, what lowering tax rates on corporations and small businesses will do for the local economy, overall, it’s a positive response. They just want to know that we’ll do our job and do what we said we would do.