Republicans who are pledging to withhold support for President-elect Trump’s ambitious agenda if the state and local tax (SALT) deduction cap is not raised are set to meet with the incoming president this weekend.
“I’ve been very clear from the start, I will not support a tax bill that does not lift the cap on SALT,” Rep. Mike Lawler (R-N.Y.) told reporters earlier in the week.
Republicans are plotting to push Trump’s tax, energy and border priorities through a special party-line “reconciliation” process that bypasses the need to get Democratic buy-in but can only be used once or twice in a year.
In the razor-thin House GOP majority, opposition from a handful of SALT Caucus members could hold up the major bill.
But the push to lift the cap on SALT — an expensive tax deduction that’s popular among wealthier taxpayers in several higher tax states — is facing pushback from the other end of the ideological spectrum in the GOP, where fiscal hawks warn about the budgetary impacts.
“SALT is a factor in determining whether you can get to a deficit reduction,” said Rep. Chip Roy (R-Texas), a member of the Freedom Caucus. “I think we need overall deficit reduction. That’s my priority.”
One Republican who will be in attendance at the Saturday meeting told The Hill that a lot of attention will be placed on the SALT deduction cap, but blue state Republicans will be looking at how the total tax package and how other variables will impact blue states. The alternative minimum tax and a version of the SALT cap for corporations will also be important.
Trump, eager to see his agenda enacted as quickly as possible, is huddling with members from across the House GOP this weekend as they hash out conflicting priorities. He met with members of the Freedom Caucus on Friday and will meet with other caucus leaders and committee chairs Sunday.
While the SALT Caucus has considerable leverage within Republicans’ tiny House majority, they appear to be giving up on an outright cancellation of the SALT cap, going into the meeting with a proposal for a raised, rather than terminated, limit for the tax break.
Lawler refiled legislation this week to increase the SALT cap to $100,000 for single filers, which is 10 times the level of the current cap at $10,000. Lawler’s bill would bump the cap up to $200,000 for joint filers, getting rid of what detractors call the law’s “marriage penalty.”
But simply raising the cap for married couples will not be enough on its own to get the support of SALT-focused members, the first Republican told The Hill.
Lawler told The Hill he didn’t expect a deal over the weekend but that he thought negotiations would continue throughout the reconciliation process. He also endorsed Trump’s preference to move on a single all-encompassing reconciliation bill for the GOP agenda rather than splitting it into the two different bills, a strategy sought by Senate leadership and the Freedom Caucus.
“Look, I don’t expect it to be resolved in the meeting. We’re obviously working through the reconciliation process. Taxes, border, energy will all be part of the mix … But the objective certainly is to go in as a unified front, those of us in these states, these districts that are most acutely impacted by the cap on SALT, and have a discussion with the president,” he said.
SALT Caucus member Nick LaLota (R-N.Y.) said the cap was brought up during a House GOP planning meeting on reconciliation last weekend, but that there were no numbers or specifics discussed — just that it was a priority both in the House and in the incoming administration.
LaLota said he didn’t care whether reconciliation happened in one or two bills.
“The number of bills is not on my priority list. That we have a reasonable increase in a SALT deduction is my top priority, and so when I can achieve my top priority, I’m not going to be a stickler on other things that are less or not important to me,” he said.
In addition to Lawler and LaLota, Reps. Young Kim (R-Calif.), Tom Kean Jr. (R-N.J.), Andrew Garbarino (R-N.Y.), and Nicole Malliotakis (R-N.Y.) are set to attend the blue-state Republican huddle at Trump’s Mar-a-Lago residence in Florida on Saturday.
Other proposals to change the SALT cap include a more modest one to double it to $20,000 from $10,000.
Increasing the cap to just $15,000 for individuals and $30,000 for joint filers could increase the deficit by as much as $450 billion, the Committee for a Responsible Federal Budget, a Washington think tank, estimated this week.
The SALT Republicans are poised to hear good news from Trump on their top priority. Campaigning in September, Trump suggested he would pursue a full reversal of the SALT cap, pledging on social media to “get SALT back” and to work with Democrats in the process.
“I will turn it around, get SALT back, lower your Taxes, and so much more. I’ll work with the Democrat Governor and Mayor, and make sure the funding is there,” Trump wrote on social media.
The calls to raise the SALT cap, though, will complicate the calls from fiscal hawks in the party to make the massive bill deficit neutral, or even deficit reducing.
Republicans are already aiming for $2.5 trillion in cuts to appease fiscal hawks who balked at raising the debt limit as part of the bill. Losing out on revenue by raising the SALT cap means Republicans will have to find even more cuts elsewhere to meet that goal.
“The SALT deduction cap can cost as much as a trillion dollars. So you know, it would have to be taken into account and balanced against even more cost savings and more improvements to the bureaucracy,” said Rep. Ben Cline (R-Va.), vice chair of the conservative Republican Study Committee and a member of the House Freedom Caucus.
The Committee for a Responsible Federal Budget estimated in 2021 that getting rid of the cap would add $900 billion to the deficit.
If Republicans do nothing, the cap will expire later this year and the deduction will be reset to be unlimited, further adding to the deficit — and financial markets were already showing signs of stress this week amid uncertainties about federal deficit levels.
Investors sold off U.S. bonds and the 10-year yield jumped midweek above 4.7 percent, the highest level since April, on potential concerns about rising debt levels.
The upward trend in longer-term yields comes even as the Federal Reserve has been reducing interest rates to spur economic growth, delivering a full-point cut since September and projecting more cuts this year. Apollo chief economist Torsten Sløk called the diverging trajectories between short term interest rates and bond yields “very unusual.”
The reason behind it may be that investors are seeking greater returns on their investments in light of greater uncertainty about federal debt levels.
The rate differences may also reflect slowing international demand for U.S. Treasurys or the belief that the Fed’s recent cuts were not warranted, Sløk surmised in a commentary.
“I don’t think entitlement reform is on the agenda,” investor Axel Merk told The Hill. “Those who are concerned about fiscal sustainability are as concerned today as they were yesterday.”
