The major question facing Republicans as the Senate Finance Committee works to release its One Big Beautiful Bill Act tax plan is what will happen with the cap on state and local tax deductions.
The SALT cap has been perhaps the most vexing policy consideration for the Senate’s GOP tax writers. The current $10,000 SALT cap was imposed as part of President Donald Trump’s 2017 tax cuts. Now, Republican House members in high-tax states have enough leverage to raise that threshold.
The House-passed version of the bill quadruples the cap to $40,000, with an income limit of $500,000. But no senators want the SALT cap to move that high, so the Finance Committee is trying to balance the cap from $40,000 while keeping it high enough that House Republicans in the so-called “SALT caucus” will still support the legislation.
While the Senate Finance Committee is reportedly considering releasing the text of its version of the bill soon, it is unclear whether that will include an agreement on SALT.
Sen. Markwayne Mullin (R-OK) has been playing the role of a go-between to the House and Senate over the issue. He suggested on Thursday that the SALT portion of the tax legislative text could be left out for the time being and said he had a conversation about it with Finance Committee Chairman Mike Crapo (R-ID).
“Maybe it’d be better to just carry communication rather than stake our flag right down,” Mullin said, according to Politico.
At the heart of the problem is a difference in opinion between chambers and the razor-thin majority that Republicans hold in the House.
Republicans can only afford to lose a small number of votes in the House, and given the numbers at play, Republicans from high-tax states such as New York and California have seized the opportunity. They hope to use it to exact major concessions on lifting the $10,000 cap on federal deductions for state and local taxes.
Reps. Mike Lawler (R-NY) and Nick LaLota (R-NY) have been particularly vocal about keeping the $40,000 cap agreed to in the House in place, but other SALT Republicans, such as Reps. Andrew Garbarino (R-NY), Young Kim (R-CA), and Elise Stefanik (R-NY) also pushed hard to get the cap boosted.
In a joint statement, Kim and Garbarino said that the group worked in “good faith” with House leadership to get a “fair deal” on SALT.
“The Senate would be remiss to forget that the path to 218 — and delivering for the American people — runs through the SALT caucus,” they said.
LaLota recently compared potential changes in the Senate to digging up radioactive waste.
“The 120 days or so that we fiercely negotiated and ultimately compromised on a number was at times very painful,” LaLota told the Washington Examiner. “To change that compromise number would be to unearth a radioactive material that’s safely buried that nobody should want to talk about or change or disrupt.”
Alex Conant, a GOP strategist and partner at Firehouse Strategies, told the Washington Examiner on Friday that the division between the House and the Senate, in part, is due to several House legislators who see increasing the cap as a priority, but this is not the case in the upper chamber.
He said that Republicans in the Senate have other priorities that they would rather see in the legislation, such as making business tax breaks permanent. Pruning the SALT cap could give them more funding to codify those business provisions, which would be better for economic growth.
“The Senate is looking for revenue, and the SALT deductions are an obvious target — that’s why they were put there in the first place,” Conant said.
But those SALT Republicans in the House have every incentive to put up a strong fight and not give up ground, he said. That is because even if no deal is reached and the end-of-year tax deadline is breached, the SALT cap would be eliminated entirely.
It’s unclear exactly what number senators are eying for their target in SALT cap negotiations.
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Sen. Thom Tillis (R-NC) told Bloomberg earlier this week that a $30,000 compromise is being considered. Notably, SALT Republicans in the House already rejected an offer of $30,000 during negotiations on the House side.
“In New York, you’d call it a third rail,” Rep. Nicole Malliotakis (R-NY) told the Washington Examiner recently. “And if you mess with SALT, you’re messing with the entire legislation.”