Republican SALT backers split on how far to go on blue state tax deductions
Zachary Halaschak
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Blue-state House Republicans are split over how far to go in insisting on state and local tax deductions for the residents of their wealthy and high-tax states, imperiling their efforts to extract key concessions from conservatives as the GOP conference tries to pass major tax legislation.
At issue is the $10,000 cap on deductions for state and local taxes (SALT) paid that was included by Republicans in the Trump tax overhaul as a way to offset the revenues lost from other tax cuts in the bill. The deductions largely benefit wealthy people in high-tax blue states.
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The so-called SALT caucus, which consists of Republicans and Democrats from high-tax states like New York and California, have been pushing to have the cap eliminated or at least raised. And as Republicans work to push through a package of tax cuts, some GOP members of the caucus are threatening to make things messy.
With a mere five-seat majority in the House, Republicans must move in near unanimity to get their planned tax package out of the gates and to the Senate. But Rep. Mike Lawler (R-NY) told the Washington Examiner that he and some other lawmakers won’t vote for any tax package that doesn’t include SALT relief — hearkening back to just a couple months ago when the conservative Freedom Caucus also used their bloc to stop up votes in the closely divided House.
Now, the upstart group could rub some salt in the wound left by the conservative faction.
“Just the same way that those in the Freedom Caucus have been leveraging their votes to get things they want, the reality is two can play that game,” Lawler said. “And we will not support anything that does not include a fix for SALT. That’s up to them how they handle it.
“Doing nothing is not an answer and I won’t accept that as part of any tax bill,” Lawler said.
But others in the SALT caucus think that getting the tax package out of the House so that it can move forward makes more sense strategically and economically.
“Everyone sees it strategically different,” Rep. Nicole Malliotakis (R-NY) told the Washington Examiner of the group. “What I would say is we can’t have any negotiation on SALT unless you pass this economic plan out of the House.”
Malliotakis said that, while she would like to see the House package have some sort of fix, she thinks that her group will have better success negotiating SALT on a bipartisan basis after the package is sent to the Senate. Malliotakis also thinks that 2025, when the cap is set to expire, is an even better opportunity to score a big win on the SALT cap.
“My opinion, I think there is two opportunities. One is letting SALT just expire in 2025 … or we try and push something in using our bipartisan SALT caucus in the tax plan, but in order for us to do that, we need to pass this tax plan out of the House,” she said. “The way I envision it is if we pass this out of the House, it starts the ball rolling on a bipartisan, bicameral economic plan and then members of the SALT caucus can advocate to try to get some changes to it as part of the negotiation.”
In the planned House tax package is a bill put forward by Malliotakis and Rep. Michelle Steel (R-CA) that would provide tax relief for millions of people across the country.
Their bill would temporarily increase the standard deduction by $4,000 for married couples and $2,000 for single filers during 2024 and 2025. Currently, the standard deduction is $27,700 for married couples and $13,850 for single filers.
The standard deduction is the part of a taxpayer’s income not subject to taxes. The standard deduction can be claimed if taxpayers chose not to itemize their deductions.
Someone familiar with the ongoing negotiations expressed to the Washington Examiner that the provision increasing the standard deduction was supposed to create more wiggle room to get the tax package out of the House.
“Leadership intended to appease the SALT caucus by including this legislation to provide a bonus guaranteed deduction that would help lower- and middle-income Americans,” the source said. “Instead, this small group of Republicans has doubled down on their position to vote against any package without SALT included, even though other conservatives have made clear they will not support the bill.”
Malliotakis was asked whether she would vote for a package that doesn’t have any changes to the SALT cap, at least for the time being, just to get the legislation out of the House.
“If it includes the standard deduction, I think that’s a big win for my district and for predominantly middle-class districts across America,” she responded.
In districts with predominantly middle-class families, increasing the standard deduction can provide a lot of relief, but in other districts with wealthier residents, raising the standard deduction may not be enough to offset SALT, according to Malliotakis.
Even with the standard deduction increase, Lawler, who represents one of the country’s wealthiest districts, is holding firm on his stance against a vote without SALT relief for his constituents.
“As far as I’m concerned, it’s not a fix for SALT,” Lawler said of increasing the standard deduction.
Lawler said that by “fix” he doesn’t necessarily mean repealing the cap. He said he is open to negotiations and mentioned a couple pieces of past legislation in the context of a fix — for instance, doubling the cap for married couples or raising the cap to $100,000 for single earners and $200,000 for married couples.
“For me I think there’s a lot of options on the table but there needs to be a good-faith negotiation to address the concerns of our constituents and our districts,” Lawler said.
But the thin GOP majority in the House cuts both ways. If the group of centrist Republicans forces the inclusion of SALT relief in the tax package, it could endanger support from some of the more conservative members of the conference. Conservatives oppose SALT deductions on the grounds that they make it easier for states to raise taxes and government spending.
“I don’t see the broader Republican conference supporting a repeal of the SALT cap,” a senior Republican aide told the Washington Examiner.
The aide also said that the SALT cap wasn’t imposed as part of the 2017 tax cuts merely as a pay-for, but also worked to remove “the behavioral distortion” created by high-tax states and local municipalities.
“Before the 2017 SALT cap, states and local jurisdictions could increase taxes without much impact to the taxpayer, incentivizing fiscally irresponsible behavior. Removing this distortion encourages more efficient behavior from state and local jurisdictions,” the aide said.
Malliotakis said that there should be some plan to ensure that cities and states don’t just raise taxes after the SALT cap expires or a plan is negotiated before then to provide some SALT relief.
“What good is it for us to change SALT and provide some relief with one hand if the mayors and the governors are going to take that money in the other hand by increasing taxes further,” she said, noting that Ways and Means is looking at creating a working group to look at how to incentive states and municipalities to not raise taxes.
The Tax Foundation, a nonpartisan think tank that generally prefers lower taxes, estimates that repealing the SALT cap would cost the U.S. $380 billion in revenue.
Critics of raising the SALT cap also argue that it disproportionately benefits the wealthy. A study from the Tax Policy Center found that only about 9% of households would benefit from a full repeal of the cap. Additionally, TPC found that more than 96% of the tax cut would go to the highest-income 20% of households.
Extending the expiring portions of the 2017 tax cuts was a top priority for Republicans on the tax-writing Ways and Means Committee heading into the new Congress. Republicans cite the tax changes as being the driving force behind the ultra-low unemployment notched right before the coronavirus pandemic took hold.
A 2018 analysis by the Tax Foundation found that if the expiring tax provisions are extended, they would increase the country’s long-run GDP by more than 2% and long-run wages by about 1% and would add 1.5 million full-time equivalent jobs.
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Negotiations between the Ways and Means Committee and members of the SALT caucus like Lawler, Malliotakis, LaLota, and others is ongoing. Lawler said that to the credit of Chairman Jason Smith (R-MO), there have already been individual meetings with him and group meetings.
“We will continue to have dialogue with the chairman, his staff, and leadership on this issue,” he said.