Despite the label they give themselves, there is nothing “moderate” about the fiscal irresponsibility of blue-state Republicans as House Republicans try to complete their work on President Donald Trump’s “one big, beautiful bill.” These Republicans from states such as California, New Jersey, and New York are pushing for massive subsidies for the wealthiest taxpayers while refusing to cut spending in any meaningful way. If they get their way, the federal government will spend itself into record-setting debt and economy-crippling interest rates for years to come.
Trump’s 2017 Tax Cuts and Jobs Act was good public policy because it simplified the tax code, broadened the tax base, and lowered rates, making for a more efficient and fair tax system. One of the primary ways it accomplished this was by capping at $10,000 the amount of state and local tax, or SALT, that households were allowed to deduct from their federal taxable income.
The SALT deduction has always been bad policy. It adds unnecessary complexity by requiring taxpayers to navigate itemization rules and track state and local tax payments, which undermines efforts to simplify tax filing. It helps Democrat-run states raise taxes that are then subsidized by federal taxpayers through the SALT deduction. This lets them offload their spending on the rest of us. Finally and most importantly, the SALT deduction almost entirely benefits wealthy households, which are the only ones that have high state and local tax liabilities.
Republican centrists from wealthy Democratic states, such as Reps. Mike Lawler (R-NY), Nick LaLota (R-NY), Tom Kean (R-NJ), and Young Kim (R-CA) want to repeal the SALT deduction cap, which would cost $600 billion. It is unclear how or if they expect this tax cut for the wealthy to be paid for, other than by future generations saddled with extra debt.
They certainly do not intend to offset the cut by slowing the growth of Medicaid because they oppose all Republican efforts to cut spending, too.
Medicare and Social Security still account for the biggest portion of total spending, but no spending is growing faster in the federal budget than Medicaid. Medicaid’s excessive spending growth is being almost entirely driven by the Affordable Care Act’s Medicaid (Obamacare) expansion, not by benefits for the populations that Medicaid was originally created to protect: children, pregnant women, and the elderly.
Between 2013 and 2022, more than 20 million such adults were added to Medicaid, compared to just 2.5 million children, 1.2 million seniors, and 400,000 disabled people. Worse, federal law pays states more to cover able-bodied adults than it does the vulnerable population. Studies show that states that have expanded Medicaid coverage to able-bodied adults have also shifted money away from vulnerable populations. Low-income children suffered the most.
HOUSE REPUBLICANS MAKE PROGRESS ON PERMITTING REFORM
Spending hawks in the House Republican Conference want to reform Medicaid and slow spending growth by allocating more money to vulnerable populations and less to the able-bodied. This commonsense reform is what the centrists are fighting. They want to keep Medicaid payments for children low and Medicaid payments for able-bodied adults high so Medicaid expansion dollars keep flowing to their blue states.
There is a real danger that House Republicans will capitulate to Republican demands on SALT and Medicaid. We hope Speaker Mike Johnson (R-LA) shuts down the high-spender rebellion.