Washington To support an extension of President-elect Donald Trump’s tax code next year, a group of House Republicans from high-tax states are calling for an increase in the federal deduction for state and local taxes, or SALT.
The $10,000 cap on state and local tax deductions, which Republicans imposed in a 2017 tax reform law, is the main point of contention. California, New Jersey, and New York were the states most affected by the policy. Additionally, several Republicans in those states say they will use their influence to increase the tax relief for their people, given that the GOP is expected to have a razor-thin House majority of 220–215.
Eight or ten very salty Republicans, a two-seat majority? A supporter of a larger SALT deduction, Rep. Nick LaLota, R-N.Y., told NBC News, “You guys can do the math on that one.”
Last year, LaLota, who represents a district on Long Island where SALT is a significant issue, fought with Republican leaders who support limiting the deduction. He made it clear this week that he wants more than the $20,000 deduction, saying it is insufficient to double it as some have suggested.
Assuming Democrats are united in opposition, the GOP can afford no more than two defections to approve their proposed bill. Despite being a minority within their party, the pro-SALT Republicans have a significant advantage: Absent congressional action, the SALT cap would be eliminated and taxpayers would be able to deduct an unlimited amount of state and local taxes from their federal returns when the majority of the 2017 tax code expires at the end of 2025.
In all honesty, members from California, New Jersey, and New York have a seat at the table here with a majority of two. Representative Nicole Malliotakis, R-N.Y., a member of the Ways & Means Committee, which writes taxes, stated in an interview that if [the 2017 tax bill] expired, [the cap on] SALT would be totally eliminated. We don’t want to have to go through that, do we? Working with the committee and our conference, we hope to arrive at a sensible solution.
Republicans who support SALT are headed for conflict with their colleagues who are against extending the deduction. They contend that because voters can use the provision to reduce their federal tax payments, states are encouraged to raise local taxes.
Rep. Thomas Massie, a Republican from Kentucky, stated, “I believe that a large SALT tax deduction just encourages states to raise their own taxes.”
The conflict surrounding SALT is an illustration of the challenges Republicans will face because of the slim House majority, according to Sen. Thom Tillis, R-N.C., a member of the Finance Committee that will draft the tax legislation.
According to Tillis, who represents a state where taxpayers don’t take the deduction as frequently, it would be financially reckless to not have a SALT cap.
In September, Trump said he’d seek toget SALT backif elected to a second term, a turnaround from his prior position after he signed the $10,000 cap into law as president. He did not, however, provide details.
According to Malliotakis, raising the maximum to $20,000 is a bit low, especially for New Yorkers.
She said that in order to make the deduction truly targeted at the middle class, she anticipates a future House bill that will raise the SALT deduction, remove the marriage penalty (currently, the $10,000 cap applies to both single and joint filers, which hurts married couples), and take into consideration some sort of income cap for who is eligible to use the deduction.
Other Republicans worry that expanding the SALT deduction would add to the cost of a 2017 tax law extension that is already likely to add trillions of dollars to the national debt. Some prefer to keep the cost down or pursue other policies, like tax-rate cuts. Others note that the biggest benefits of SALT go to higher-income earners.
That s a giant tax break to wealthy people on the coast, so I m not terribly sympathetic, said Sen. Josh Hawley, R-Mo. But maybe some of my colleagues who really, really want that big tax break would like to do something for working families. Maybe we can reach a compromise.
Democrats are unlikely to have any say in the planned tax bill. Republicans are planning to advance it along party lines through the budget reconciliation process, which requires 50 votes for passage in the Senate, where Republicans will have a 53-seat majority.
Rep. Richard Neal, D-Mass., the top Democrat on the Ways & Means Committee, chuckled when asked about the GOP clash over SALT.
I m overjoyed with their problem, Neal said.
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