House Republicans appear likely to win a very slim majority in the House, which could prove helpful to the handful of GOP lawmakers pushing to expand federal deductions for state and local taxes paid.
Trump’s 2017 Tax Cuts and Jobs Act included a $10,000 cap on SALT deductions, and lawmakers in high-tax jurisdictions such as New York and California have been adamant about raising or eliminating that cap.
Republicans have so far ignored the entreaties from blue-state Democrats to raise the cap on SALT deductions. But with a small Republican majority, the small group of pro-SALT GOP lawmakers might be able to vote as a bloc and exact concessions on the cap.
What’s more, while most rank-and-file Republicans oppose SALT, President-elect Donald Trump now says he supports expanding the SALT cap, a reversal of his own policies and a source of political cover for Republicans who might not have been open to budging on the matter.
Garrett Watson, a senior policy analyst at the Tax Foundation, told the Washington Examiner that if there is a small Republican margin in the House, it’s going to empower SALT-sensitive members “to make that a leverage point going into next year.”
“Especially with President-elect Trump saying that he wants to potentially provide that SALT relief or let the cap expire,” Watson added.
Despite the performance of Republicans more generally, one member of the SALT caucus, Rep. Marc Molinaro (R-NY), lost his race in a tight election. Molinaro told the Washington Examiner on Friday that his Republican allies in the House, empowered by Trump’s blessing, now hold “enormous weight” in securing changes to the SALT cap.
“With President Trump’s commitment to restoring the SALT deduction and slim majorities in both houses, the SALT caucus — New York and New Jersey Republicans especially — hold enormous weight in lifting the cap and delivering meaningful tax relief,” he said.
Trump first endorsed changes to the SALT cap in September.
“Hundreds of thousands of Migrants, Crime at record levels, Terrorists pouring in, Inflation eating your hearts out — WHAT THE HELL DO YOU HAVE TO LOSE? VOTE FOR TRUMP! I will turn it around, get SALT back, lower your Taxes, and so much more,” Trump said in a post on his social media platform, Truth Social.
Kyle Pomerleau, a senior fellow at the conservative American Enterprise Institute, pointed out that, historically speaking, it is much easier for factions in the House to wield power when a party holds only tenuous control of the chamber.
“When the majority is large, individual coalitions or caucuses within the Republican Party have very little power,” he told the Washington Examiner. “But when the majority is much smaller, any given coalition has the ability to gum up the works if they want if their issue is not being addressed.”
While there could be changes to the SALT cap, perhaps doubling it, repealing the SALT cap would be very expensive and politically difficult.
“I’d expect the cap to go up. I do not expect it to go away entirely,” Pomerleau said. “There may be Republicans that want the cap to be eliminated, but there are two things working against that.”
First, the overwhelming majority of the Republicans in Congress do not want the cap — which is set to expire next year — to be removed. Many voted to add it to the 2017 Trump tax cuts legislation.
And secondly, eliminating the cap would be very costly and only add to the deficit. Nonpartisan budget experts who have modeled Trump’s economic plans contend that his agenda will dig the U.S. deeper into its fiscal hole, although completely axing the SALT cap would just make the situation worse.
According to the Tax Foundation, allowing the SALT cap to expire would cost the government $1.2 trillion over the next decade — an enormous and politically unpalatable cost.
Both Republican and Democratic critics also see SALT deductions as disproportionately benefiting 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 the highest-income 20% of households would receive more than 96% of the tax cut.
So any changes are likely to be more muted.
Stephen Moore, a Heritage Foundation economist and informal adviser to Trump, recently told the Washington Examiner that he thinks SALT proponents could score some changes to the cap but doubts there would be a wholesale repeal. More noted that he hasn’t personally spoken to Trump about the SALT cap issue, though.
“I’m just picking out a number, let’s say you raised it to 20%, so that would provide really for middle-class people who have been hit by the elimination of the SALT deduction,” Moore said. “But millionaires and billionaires living in Long Island or Manhattan, they effectively still lose the SALT deduction because the exempted amount is so small relative to their income that it doesn’t matter.”
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Watson pointed out that if Republicans were on track to win a bigger majority, say, 30 seats, then the SALT caucus would have little power at all coming into the new Congress. They could have been easily sidelined by SALT critics, some of whom want not only to make the SALT cap permanent but also to lower it further or eliminate SALT deductions entirely.
This article was originally published at www.washingtonexaminer.com
