Republicans, who have vowed to withhold support for President-elect Trump's ambitious policies unless the cap on state and local tax (SALT) deductions is increased, are scheduled to meet with the president-elect this weekend.
“I've been clear from the beginning: I will not support any tax bill that does not eliminate the SALT cap,” Rep. Mike Lawler, R-New York, told reporters earlier in the week.
Republicans are plotting to push President Trump's tax, energy and border priorities through a special partisan “reconciliation” process that bypasses the need to get Democratic buy-in, but the process only happens once a year. , can only be used twice.
The House Republican majority is so thin that opposition from a small number of SALT members could block major legislation.
But moves to eliminate caps on SALT, a big tax credit popular among wealthy taxpayers in some high-tax states, have prompted fiscal hawks to warn of budget implications for Republicans. facing opposition from ideological opponents within the country.
“Salt is the deciding factor in whether we get to deficit reduction,” said Representative Chip Roy (R-Texas), a member of the Freedom Caucus. “I think we need overall deficit reduction. That's my priority.”
A Republican attending Saturday's meeting told The Hill that while the SALT deduction cap will get a lot of attention, blue-state Republicans are concerned about how tax totals and other variables will affect blue states. He said he is paying attention to what he will give. Alternative minimum tax and SALT cap versions for businesses are also important.
President Trump wants his agenda passed as soon as possible and is meeting with members from across the House of Representatives this weekend to weigh competing priorities. He will meet with members of the Freedom Caucus on Friday and with other caucus leaders and chairmen on Sunday.
The SALT caucus, which has considerable influence within the small Republican House majority, appears to have given up on completely eliminating the SALT cap and came to the meeting with a proposal to raise the tax cut cap rather than end it. It's coming.
Lawler reintroduced a bill this week that would increase the SALT cap for single filers to $100,000, which is 10 times the current cap of $10,000. Lawler's bill would raise the cap to $200,000 for joint filers and eliminate what detractors call the law's “marriage penalty.”
But raising the marital limit alone isn't enough to win support from SALT-focused members, a first-time Republican told The Hill.
Lawlor told The Hill he did not expect an agreement over the weekend, but believes negotiations will continue throughout the settlement process. He also supported President Trump's intention to move forward with a single all-encompassing reconciliation bill rather than splitting the Republican agenda into two separate bills, something Senate leadership and the Freedom Caucus are exploring. He also supported the strategy of.
“Listen, I don't expect it to be resolved at the conference. We are clearly working on a reconciliation process. Taxes, borders, energy will all be part of that… but the purpose is to “Certainly, it's about bringing together those of us who live in these states, these districts that are most severely affected by the SALT cap, as a united front,” he said.
Nick LaLota, a member of the Salt caucus from New York, said the cap was brought up during a House Republican planning session on reconciliation last weekend, but no numbers or details were discussed, simply that it was He said it was simply a priority for both the House and Congress. The next government.
LaRota said he doesn't care whether the settlement comes in one bill or two bills.
“The number of banknotes is not on my priority list. Properly increasing the salinity deduction is my top priority. So if I can achieve my top priority, it's not important or unimportant to me. I'm not going to dwell on anything else.,” he said.
In addition to Mr. Lawler and Mr. Larota, Representative Young Kim (R-Calif.), Representative Tom Keene Jr. (RN.J.), Congressman Andrew Garbarino (RN.Y.), and Nicole Malliotakis A member of the House of Representatives (RN.Y.) is also scheduled. On Saturday, he will attend a blue state Republican rally at President Trump's Mar-a-Lago mansion in Florida.
Other proposals to change the SALT cap include a more modest proposal to double it from $10,000 to $20,000.
The Committee for a Responsible Federal Budget, a Washington think tank, estimated this week that raising the cap to just $15,000 for individuals and $30,000 for joint filers could increase the deficit by up to $450 billion. .
SALT Republicans are ready to hear good news from President Trump as a top priority. During the September campaign, Trump hinted at the idea of pursuing a complete repeal of the SALT cap, vowing on social media to “take back SALT” and work with Democrats in the process.
“I will turn things around, bring back SALT, lower taxes, and much more. I will work with Democratic governors and mayors to make sure they are funded,” Trump said on social media. Posted in media.
But calls to raise the SALT cap would complicate demands by fiscal hawks in the party to neutralize or reduce the large bill deficit.
Republicans are already seeking $2.5 trillion in cuts as part of the bill to appease fiscal hawks who are reluctant to raise the debt ceiling. The revenue lost from raising the SALT cap means Republicans will have to find further cuts elsewhere to achieve their goals.
“Capping the SALT deduction could cost as much as $1 trillion, so we need to balance it with further cost savings and further improvements to bureaucracy,” said a vice president of the conservative Republican Research Committee. said Congressman Ben Kline (R-Va.), chairman and member of the committee. of the House Freedom Caucus.
The Committee for a Responsible Federal Budget estimated in 2021 that eliminating the cap would increase the budget deficit by $900 billion.
If Republicans do nothing, the cap will expire by the end of the year, deductions will reset to unlimited, and the deficit will widen further — and this week, amid uncertainty over the level of the federal deficit, the cap will expire at the end of the year. Markets were already showing signs of stress.
Investors sold U.S. Treasuries on potential concerns about rising debt levels, pushing the 10-year yield above 4.7% in midweek, the highest level since April.
The upward trend in long-term yields continues despite the US Federal Reserve (Fed) cutting interest rates to promote economic growth, having cut interest rates across the board since September and expecting further rate cuts this year. It continues. Torsten Slok, chief economist at Apollo, said the divergent trajectory of short-term interest rates and bond yields is “very unusual.”
The reason for this may be that investors are seeking higher returns on their investments amid increasing uncertainty about the federal debt level.
Srock speculated in comments that the interest rate differential may also reflect a slowdown in international demand for U.S. Treasuries and a belief that the Fed's recent interest rate cuts are not justified.
“I don’t think entitlement reform is on the table,” investor Axel Merk told The Hill. “Those concerned about fiscal sustainability are as concerned today as they were yesterday.”
