WASHINGTON — Republicans are at loggerheads over the fate of a controversial tax deduction that is critical to winning enough votes in the House to pass President Donald Trump’s legislative agenda.
After a week of meetings and discussions, Republicans still haven’t settled on how to handle the state and local tax deduction, also known as “SALT,” which allows filers to deduct up to $10,000 in taxes paid to state and local governments. Before the House adjourned for the week on Thursday, GOP lawmakers on opposite ends of the spectrum continued to snipe over whether to raise that $10,000 maximum imposed by the 2017 Trump tax cuts.
Pro-SALT Republicans insist it’s not enough to lift the cap to $15,000 for individuals and $30,000 for married couples. Party leaders are looking at a higher cap, nixing the “marriage penalty” and potentially an income threshold to limit the deduction to the middle class, according to lawmakers and sources with knowledge of the talks.
There is no consensus in the GOP’s narrow House majority. It is a sensitive topic after several Republicans in high-tax areas lost their re-election races in 2018 after backing the 2017 tax law that imposed the $10,000 cap. A new crop of GOP lawmakers has since won re-election by promising to raise that cap, but doing so would be expensive and complicate the rest of the bill, which also seeks to boost funding for immigration enforcement and the milit, as well as raise the debt limit.
SALT is one of many contentious issues in the package, but it is the most unique. Many Republicans — across ideological lines — care little about the deduction and would be content to avoid expanding it. But there is no path to passing a bill without catering to the roughly dozen Republicans in New York, New Jersey and California who have made it a red line.
Rep. Nicole Malliotakis, R-N.Y., the only “SALT Caucus” member who serves on the tax-writing Ways and Means Committee, said she had briefed her fellow committee members Thursday morning about negotiations following a SALT-focused meeting a day earlier with Speaker Mike Johnson, R-La.
While there is no deal on numbers yet, Malliotakis said discussions include limiting the SALT deduction to families making less than $400,000 per year. She said the new cap could be boosted to slightly higher than $25,000.
“There is general consensus that we have no interest in supporting millionaires and billionaires, and this needs to be targeted relief for middle class families,” Malliotakis, who represents Staten Island and part of Brooklyn, told reporters. “That’s what this comes down to — what number can provide the most relief for middle class families that is acceptable to other members of the conference.”
She said the issue wouldn’t be resolved this week, but sounded optimistic that they will ultimately get “something real approved by the committee.”
“We are going over all of the menu of options,” Malliotakis said, “and eventually we will get to the right number.”
If Trump’s tax cuts expire, the SALT cap would reset to infinity, at a cost of $1.2 trillion over a decade, according to the Committee for a Responsible Federal Budget, a Washington research group that advocates for lower deficits. GOP leaders want to contain the price tag of any SALT policy to make room for other priorities.
The Ways and Means Committee still hasn’t released the text of its bill or scheduled a hearing to vote on sending it to the floor, although House GOP leaders want it to happen next week to stick to their schedule of passing the entire package out of the chamber by Memorial Day.
Democrats are guaranteed to attack SALT limits imposed by Republicans as an attempt to raise taxes on residents of blue states, which hold enough swing districts to decide control of the House.
“I don’t think there’s any magic number where it’s not a fertile attack line for Democrats, so at a certain point SALT members just have to take yes for an answer,” said Liam Donovan, a lobbyist and former GOP aide, who said the cap is likely to end up above $10,000 but well short of the $100,000 pro-SALT members appear to want.
“To me, the best way to indemnify yourself politically is to make the number as big as possible but with an income phase-out,” he said. “Hard to attack Republicans if you can’t claim it hurts middle class families. The poster child is ostensibly the cop or firefighter who has a big property tax bill, which is a relatively cheap and easy problem to fix.”
Conservative Rep. Chip Roy, R-Texas, said he opposes the SALT deduction and criticized his colleagues for pushing it.
“We shouldn’t have such high local taxes and the federal government shouldn’t subsidize it. So I’m not all that interested in hearing about my blue-state colleagues complaining about it,” Roy said, while adding that he’s only willing to accept a higher SALT cap if it is offset with spending cuts.
“You have to figure out how to get a deal done. So if the math adds up and we’re doing enough on the spending restraint side and the tax policy works out and SALT goes up a little, whatever, we’ll work it out,” Roy told reporters. “I just don’t support that policy.”
Rep. Mike Lawler, R-N.Y., who represents a competitive district outside New York City, is demanding a higher SALT deduction, noting that his state gives more to the federal government than it takes, unlike many red states.
“It’s an issue of fairness. For my colleagues that talk about bad blue-state policies, the fact is New York is a donor state. Many of my colleagues from red states actually get more money from the federal government than tax revenue that is sent to the federal government,” Lawler, who is considering a run for governor of New York, told reporters. “So if we want to talk about subsidies, then we can talk about subsidies, but the fact is that New Yorkers need tax relief. That’s what I’m fighting for in this bill.”
Lawler’s colleague, Rep. Elise Stefanik, R-N.Y., is also weighing a run for governor and has been talking up SALT recently. That could make her another difficult vote for Johnson.
Rep. Nick LaLota, R-N.Y., who represents a Long Island district that was hit hard by the 2017 GOP law’s SALT cap, said this week that boosting the deduction is essential to winning his support for the reconciliation package.
“I’m all in on the SALT provision,” LaLota told reporters. “My folks didn’t just send me here for my great good looks. They sent me here to fight for SALT, and I intend to win that fight.”
