Key Points and Summary: Donald Trump’s ambitious tax plan faces a major challenge from House Republicans demanding changes to the state and local tax (SALT) cap.
-Currently set at $10,000, the cap is a key concern for lawmakers from high-tax states like New York and California, who want it significantly raised.
-While Trump has shown willingness to negotiate, opposition within the GOP may complicate his efforts to pass broader tax reforms.
-Critics argue that raising the SALT cap would benefit wealthy taxpayers disproportionately and increase the federal deficit.
-The standoff underscores the delicate balancing act required to advance Trump’s economic agenda.
Trump’s Tax Cuts and the SALT Cap Fight: What’s at Stake?
Donald Trump, when he returns to the White House next week, has an ambitious agenda, involving immigration reform, extending his tax cuts, and encouraging economic growth, and he has Republican majorities in both houses of Congress to do it.
However, the majority in the House of Representatives is only a few seats, and small blocks of members will, therefore, have the power to hold up Trump’s agenda to extract concessions. And one of those is the coming fight over the SALT cap.
According to a CNBC report, five House Republicans are threatening to “vote together in a bloc that could derail President-elect Donald Trump’s signature tax bill,” unless Trump gives them concessions on state and local tax (SALT) deductions.
They’re part of an informal “SALT Caucus,” comprised of 16 members, who are particularly concerned with that issue, and they met with Trump recently at Mar-a-Lago. During that meeting, the members of Congress told CNBC, the president-elect “promised the lawmakers that he would back their efforts to raise the SALT cap and told them to get back to him with a number that would ensure their support for his broader tax package.”
Rep. Nick LaLota (R-NY), per CNBC, is leading the charge, per the report. Rep. Mike Lawler (R-NY), Rep. Tom Kean Jr. (R-NJ) and Rep. Young Kim (R-CA) are the others who are vowing to vote down any package that does not include a large enough cap.
Per Roll Call, the GOP is “eying” a compromise that would put the cap in the mid-five figures.
What is the SALT cap?
The state and local tax (SALT) cap is the maximum allowed tax deduction for state and local taxes. It currently stands at $10,000, but elected officials from New York and other states with high state and local taxes want it raised. In other words, very wealthy people in high-tax states would like to pay less in state and local taxes.
There’s a proposal to double the cap from $10,000 to $20,000, but LaLota and his colleagues want the cap even higher than that.
“The $20,000 is a nonstarter,” LaLota, who represents Eastern Long Island, told CNBC. “It’s almost laughable. It’s way too low to earn our vote.”
The political dynamics, however, are dicey. That’s because much of the Republican caucus that does not represent such areas feels much less strongly about the SALT cap issue. And it may be hard for a president who just won a new term thanks to what’s been described as a historical multiracial working-class coalition to expend political capital on what is essentially a giveaway to the wealthy.
The case against a SALT cap raise
There are two main arguments against raising the SALT cap. One, it would be regressive, as argued last year by the Tax Policy Center.
“Lawmakers of both parties of been trying to kill the SALT deduction cap almost since the day it passed. But there is no way around it: Repealing the cap without making other changes in tax law would be enormously expensive and a highly regressive windfall for the highest income households,” the Center argued.
Donald Trump in 2021. Image Credit: Creative Commons.
Also, raising the cap would be costly, and likely cause the deficit to rise.
As argued earlier this month by the Committee for a Responsible Federal Budget, doubling the SALT cap would do three things: “Reduce revenue by $170 billion, on top of the $3.9 trillion deficit impact of extending the expiring individual and estate tax provisions in the TCJA as written… deliver 94 percent of the benefit to households making over $200,000 per year, disproportionately in high-tax states like New York and California [and] undermine tax simplicity by significantly reducing the number of filers taking the standard deduction.”
Author Expertise and Experience: Stephen Silver
Stephen Silver is an award-winning journalist, essayist and film critic, and contributor to the Philadelphia Inquirer, the Jewish Telegraphic Agency, Broad Street Review and Splice Today. The co-founder of the Philadelphia Film Critics Circle, Stephen lives in suburban Philadelphia with his wife and two sons. For over a decade, Stephen has authored thousands of articles that focus on politics, technology, and the economy. Follow him on X (formerly Twitter) at @StephenSilver, and subscribe to his Substack newsletter.
