A key part of the 2017 Trump tax cuts was the capping of deductions for state and local taxes (SALT) at $10,000. The large majority of taxpayers never need the $10,000, but wealthy taxpayers in high-tax states are pleading with Republicans to lift the cap and grant them relief.
Budget hawks in the GOP are firmly against it. Without those caps, at least $130 billion to $200 billion would be added to the budget if the cap were raised to $100,000 as the Democrats say is needed.
Even doubling the $10,000 deduction would add up to $32 billion to the budget.
Since 2017, property values have soared, especially in red states, meaning that many more people are now subject to the $10,000 cap. The time seems ripe to raise the cap, but how much is a matter of contention even among those who support raising the SALT cap.
Trump is open to the idea where previously he opposed raising the SALT cap. In a meeting with Republicans from high-tax states at Mar-a-Largo, the incoming president said he wants the party to negotiate a "fair number."
Rep. Nicole Malliotakis (R-N.Y.) told Politico after the meeting, “The president certainly wants to increase the deduction for SALT to provide more relief because he knows that our mayors and governors are crushing taxpayers."
Indeed, blue state governors and mayors think nothing of piling on the taxes with or without SALT. New York just socked commuters with a toll of $9 every time they want to drive into lower Manhattan. Blue state Republicans are making the point that it's up to Trump to grant taxpayers relief in those states.
Yet the push still must navigate complex politics, simply because many GOP members from low-tax red states detest the deduction as they look to cut spending. There’s also fractious politics within the SALT caucus itself, which has had difficulties in the past agreeing on the appropriate “ask.” Privately, House GOP leaders have told some Republicans that without a way forward on SALT, they can’t properly plan for just how big the final package will be and how much they’ll need to cut spending to pay for it.
The debate on SALT was hashed over in a meeting between 16 members from New York, California and New Jersey, as well as Trump and two members of his staff, according to Rep. Nick Lalota (R-N.Y.), who said in a brief interview that he came away “very optimistic” that Republicans would “find a fix on SALT.” Many members who spoke with POLITICO after the meeting — where lawmakers munched on coconut shrimp, pigs in a blanket and sliders in a meeting that lasted over an hour — shared the same sentiment. They spoke about congestion pricing recently implemented in New York and the wildfires raging in California, though SALT was the main topic.
Trump is also open to indexing the cap to keep pace with inflation. But the major negotiations will be over how large the cap will be, and that's where it gets sticky.
Blue state Republicans are planning to meet and decide on a cap number that might be acceptable to most of the caucus. At this point, it seems likely that a doubling of the cap to $20,000 and indexing it would be the best way forward.
Malliotakis, a key member of the Ways and Means Committee as she sits on the Subcommittee on Tax Policy, suggests limiting the property tax deduction in SALT, bringing the price tag down considerably.
“If we’re focusing on the middle class and ensuring that they’re the ones getting the relief, then we can come up with a number that would be fair," Malliotakis told Politico.
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