Republicans aim to take full control in 2024 and are open to raising the cap on state and local tax deductions (SALT), which they supported seven years ago and introduced under former President Donald Trump.
The problem is particularly acute in high-tax blue states like California and New York, where many House Republicans hold battleground seats and have long advocated raising or eliminating SALT caps. .
“We're going to take back SALT, lower taxes, and do a lot more,” President Trump said on Truth Social earlier this month, hinting at lifting the cap on the SALT deduction.
In 2017, President Trump signed into law a $10,000 cap on the SALT deduction as part of the Tax Cuts and Jobs Act (TCJA). At the time, Republicans and the Trump administration said the new cap would be[get] “The federal government is getting out of the state grant business,” said then-Treasury Secretary Steven Mnuchin.
But Republicans now acknowledge that party members from these high-income states are likely to decide control of the House and, depending on the balance of power, could have a greater say in how Republicans approach tax policy. are.
“A thin majority means Salt State Republicans will have a larger and more proportionate voice in the debate,” said Rep. Andy Barr (R-Ky.), a member of the Financial Services Committee. It means that there is.” He voted in favor of the SALT cap and praised the impact of the Trump tax bill on companies relocating from high-tax states like New York and California.
Of the 11 House seats rated as runoffs in The Hill/DecisionDesk HQ's election forecast, six are in New York and California.
For these Republicans, the SALT deduction cap is a big issue.
First-term Republican Rep. Nick Larota of New York said he praised former President Trump's new position on SALT during a rally on Long Island earlier this month.
“I said, Mr. President, please put this on the table. This is what suburban voters in blue states want. It's the right thing to do to bring us the relief we need. “,” Larota said.
Larota said he and other pro-SALT deduction colleagues are “screaming from the mountaintops here in Washington that we need some relief on this issue, and we are eager to build a new relationship.” “I'm doing it,” he said. [with] People who want to become professional SALTs. At the top of that list is a former president. ”
In this environment, member states in red states remain open to changes to the SALT deduction.
“We have high-tax state legislators who feel it's punitive to have to pay state and local taxes on top of high federal taxes. So all the other things they want to make permanent. Along with the provisions, this will be a good discussion,” said House Budget Committee Chairwoman Jody Arrington (R-Texas).
It is unclear exactly how Republicans will implement Trump's tax promises. Several Republicans noted that President Trump has not spelled out exactly how he wants to deal with SALT.
Rep. Jason Smith (R-Missouri), chairman of the powerful House Ways and Means Committee that will lead how House Republicans approach tax policy next year, said that if Republicans retain the House majority, He rejected the idea of completely abolishing the cap.
“The president asked us to address SALT. There's going to be a cap on salt. It's not going to be unlimited, because there's no way we could pass an unlimited SALT deduction in the Republican House,” Smith said. he said. He spoke on CNBC on Monday.“The ceiling will definitely be higher,” he added.
One option is to eliminate the so-called marriage penalty. The penalty applies a $10,000 SALT deduction cap to married couples who file taxes jointly and earn less than $500,000 annually.
In February, Democrats and some Republican lawmakers blocked a Republican bill that would have increased the deduction from $10,000 to $20,000, thereby keeping the so-called marriage penalty in place.
Rep. Warren Davidson (R-Ohio) said the SALT cap issue could be used as leverage in other tax negotiations.
“I think there's a good path forward to include the SALT changes as part of tax reform,” Davidson said, adding that the changes to research and development and other business deductions have been Republican priorities in recent tax bills. Mentioned. It failed to pass the Senate over the summer. “SALT is one of the things that might bring us some agreement.”
Democratic opposition has been strong since the SALT cap was passed in 2017.
Senate Majority Leader Chuck Schumer of New York recently slammed it, calling it a “terrible bill.”
“I've always been in favor of lifting salt limits. I think this was a nasty bill supported by President Donald Trump that targeted blue states that help people in many ways.” he told reporters earlier this month.
With most of the tax law set to expire next year, the next Congress is poised for a major tax battle in 2025, but recently Sen. Mike Rounds (R.S.D.) Opened the door to negotiations.
Key tax provisions that may feature prominently in negotiations in addition to SALT are the corporate tax rate, the 199-A pass-through deduction, various business deductions, the child tax credit, the earned income tax credit, and tax bracket structure.
Taxation of partnerships, which are a type of commercial pass-through entity, can be a serious sticking point in the negotiation process. That's because while Republicans want to defend pass-through deductions, the IRS, recently strengthened by Democrats, is setting the policy. Create a whole new department to tax them.
“IRS audit rates for large partnerships have declined to less than 0.5% since 2007. Approximately 80% of audits conducted found no tax violations.” “This could suggest that they are not selecting the most risky returns or don't know how to spot nonconformities in these operations,” the Government Accountability Office said in a report last year.
The IRS released draft Form 7217 on Monday, requiring partner firms to report “all distributions of property that a partner receives from the partnership.”
