A group of blue-state Republicans is meeting with President-elect Donald Trump and will make lifting the cap on federal deductions for state and local taxes a “top priority,” a move that will have major implications for a broader tax deal.
With a razor-thin majority, House Republicans can’t afford to lose even a single vote on the pending tax legislation. Given the numbers at play, Republicans from high-tax states like New York and California have seized on the opportunity and are hoping to use it to exact major concessions on the SALT cap.
Trump will meet with a number of the key SALT players on Saturday at Mar-a-Lago, and they are sure to discuss the $10,000 cap on SALT deductions that was included in the 2017 Tax Cuts and Jobs Act, often referred to as the Trump tax cuts. Because the individual provisions of the law are set to expire this year, lawmakers on Capitol Hill are plotting a major fiscal overhaul. Republicans plan to pass the bill through budget reconciliation, a legislative process that allows for bills to bypass the filibuster and pass with only a simple majority in the Senate.
One of those players, Rep. Mike Lawler (R-NY) told the Washington Examiner on Thursday that lifting the SALT cap is a “top priority” for him and Republicans from other high-tax states like New York, New Jersey, and California. While a variety of issues will be discussed with Trump over the weekend, lifting the SALT cap will be “a big part of the discussion on Saturday.”
Lawler declined to say how much the SALT cap would need to be raised to garner his support and said he doesn’t intend to negotiate through the press.
“Look, it’s going to be a good conversation,” Lawler said. “We’re going to obviously get a chance to sit down and talk about this, among other issues.”
LAWLER SETS HIGH BAR FOR SALT CAP EXPANSION IN LEAD-UP TO KEY TRUMP MEETING
Rep. Nicole Malliotakis (R-NY) suggested on Thursday that negotiations around increasing the SALT cap might come down to parameters like income thresholds. Many Republicans have bashed SALT because it overwhelmingly benefits the wealthy. Setting income thresholds on deductions might be a way to make a SALT cap increase more palatable to conservatives.
The Tax Policy Center found that the highest-income 20% of households would receive more than 96% of the tax cut if the cap were fully repealed
Even just eliminating the so-called marriage penalty, meaning that the cap would be raised to $20,000 for married couples, would disproportionately benefit higher earners. The Committee for a Responsible Federal Budget in a new analysis this week found that cutting the marriage penalty would give 94% of the benefit to households earning over $200,000 per year.
Including income guardrails could make attacks against SALT pack less of a punch and could be used to appease some Republicans opposed to raising the cap.
“I think that we have some ideas on what could be done … maybe setting some parameters in terms of income threshold so it’s truly for the middle class, looking at ensuring primary residences can only be deducted was an idea I threw out to limit it,” Malliotakis said at the Capitol Thursday.
Many rank-and-file Republicans are opposed to SALT deductions, but will likely vote to raise the cap if Trump and Republicans are able to come to agreement to pass other key tax cut provisions and extensions.
Rep. Kevin Hern (R-OK), the chairman of the House Republican Policy Committee, predicted that the final reconciliation legislation will be a mixed bag for everyone, given the varying opinions on tax and spending priorities in the conference, but said he trusts it will end with a bill “we can all proudly support.”
“No one’s going to get everything they want in the bill,” Hern said in a statement to the Washington Examiner. “That’s just the reality of legislating with our current margins, but I think we’ll be able to craft a bill where everyone can find something to be happy about.”
One opponent of SALT deductions is Sen. Dan Sullivan (R-AK). He said on Thursday that while he thinks the party will come to a compromise, he personally is “utterly opposed” to raising the SALT cap.
“I was here in 2017, that was a giant achievement for states like mine,” Sullivan said. “I mean, why should states like Alaska subsidize New York and Illinois and California on their big budgets and tax-and-spend policies?”
The Alaska senator also pointed out that capping the SALT deduction at $10,000 was a major pay-for in the original tax law that allowed taxes to be lowered in other areas.
More generally speaking, Sen. Ron Wyden (D-OR), the Senate’s top-ranking Democratic tax writer, bashed the Trump tax cuts while on Capitol Hill on Thursday. Wyden said that the first tax bill was “so flawed” that Trump couldn’t get even a single Democrat to vote for it.
“I want a tax code that isn’t just supercharging 2017 and giving more breaks to the people at the top. I want a tax code that gives everybody in America the chance to get ahead,” Wyden said.
It is unclear how low the SALT members will be willing to go on the cap, but Lawler reintroduced legislation this week that would dramatically hike the SALT deduction cap from $10,000 to $100,000 for single filers and would eliminate the marriage penalty, allowing married couples filing jointly to deduct up to $200,000.
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Trump and Republican leadership will have to thread the needle on the issue of SALT. Too low of a cap could lose votes from the SALT members, while raising the cap too much could jeopardize the votes of fiscally conservative and deficit-minded lawmakers — the tricky math makes the coming weekend’s meeting even more important.
“It’s like a Rubik’s Cube is a good way of putting it,” Malliotakis said. “It’s like, you change one thing and it affects everything else. And so it’s just trying to figure out what could be a good compromise that would satisfy the SALT members as well as everyone else in the conference.”