Joseph Zeballos-Roig and Kadia Goba reporting for SEMAFOR (“New York Republicans to House leaders: Hold the SALT at your own risk“):
Tensions are flaring between House Republicans as lawmakers from New York have threatened to oppose a major upcoming tax bill unless it raises the current $10,000 cap on the State and Local Tax Deduction, a pricey proposition that many in the party oppose.
Jason Smith, chair of the House Ways and Means Committee, has warned the New Yorkers that if they don’t relent, he will publicly accuse them of pushing a tax cut for the wealthy, per two House aides familiar with the situation. The SALT deduction, as it’s commonly called, is often criticized for mainly benefitting upper-income residents of high-tax blue states, though supporters argue it helps middle-class households as well.
But Smith’s hardball approach has created friction between him and Speaker Kevin McCarthy, who’s more interested in assembling a tax package that has the votes to pass the House than waging a battle over policy, one of the aides said.
For now, the SALT rebellion appears to be holding up the tax package — which includes a number of key GOP business tax priorities — with no obvious end in sight.
“SALT is the biggest issue for my constituents. It’s an issue I ran on. It’s an issue I talked about,” Rep. Mike Lawler, who represents a district in New York’s Hudson Valley, told Semafor. “And so as far as I’m concerned, any tax bill that would seek to extend any provisions that does not include a fix for salt does not have my vote, period.”
The delegation, though, is split on negotiating tactics. Sources familiar with the discussions said sophomore members have been more measured with committee leadership, while the freshmen have been more direct and confrontational. “They’re New Yorkers. They can be loud,” said one of the staffers granted anonymity to speak freely.
Rep. Nick LaLota of New York said the talks have been a “slow grind” and acknowledged that he and his fellow SALT holdouts “may use some words that one wouldn’t use in church during some of these meetings.”
A GOP Ways and Means spokesperson declined to comment. A spokesperson for McCarthy did not return a request to comment.
The cap on state and local tax deductions seemed to come out of nowhere and was widely seen as a “Screw You” from Trump and the Republicans to New York and other high-tax blue states. Because of Virginia’s weird, overlapping tax structure, the change hit my household pretty hard. (There were also various other write-offs, such as professional expenses, that went away as well and had a minor impact on us.)
At the same time, the politics were largely good. It’s simply undeniable that those who pay more than $10,000 in state and local taxes are doing pretty well economically. The vast majority of Americans don’t even file the long form and take the standard deduction—which, incidentally, went up in the same bill.
Like ethanol subsidies in Iowa or the fight over whether to store nuclear waste in Nevada’s Yucca Mountain, it seems the SALT cap is one of the last great regional policy obsessions capable of transcending party lines in American politics. It’s bound to be a pain for both Democrats and Republicans in the near future, so long as their majorities depend on members from the New York suburbs.
Republicans imposed the $10,000 cap in order to help pay for their 2017 tax bill, angering voters in high-tax New York and New Jersey. A small-but-potent bloc of Democrats from those states spent the first two years of President Biden’s term demanding that the cap be lifted — and at points threatened to imperil their party’s expansive economic agenda if it wasn’t, though they ultimately backed down.
Today, Republicans owe their own slim majority in large part to their gains in New York, which has turned SALT into a sticking point for their conference.
“Dealing with SALT was a huge headache for us. We figured it out and ultimately were able to keep everyone together,” a House Democratic aide told Semafor. “When [Republicans] are casting about for who to blame, they can look in the mirror because all of these issues about SALT go back to the way that they wrote the Tax Cuts and Jobs Act.”
Honestly, this is an issue that, not all that long ago, would have simply been voted on based on local politics. Representatives of more affluent, high-tax districts would have voted to raise the cap and everyone else would have voted to keep it where it is. Or, it would be a point of negotiation with compromises on other issues achieving an equilibrium that everyone could live with. There’s simply no reason that this should be a party-line issue.
Even if Republicans do manage to put down the SALT rebellion for now, the issue is bound to crop up again, since Congress will have to renegotiate the tax code when many of the GOP’s 2017 reforms sunset after 2025. Those talks will likely include a debate over whether to keep or ditch the SALT cap, which is one of the many provisions set to expire.
Rep. Nicole Malliotakis told Semafor that if she and her fellow New York Republicans can’t win SALT relief now, they should keep their eye on 2025. “We’ll have the most leverage” then, she said.
Barring a recession, my strong guess is that Democrats will have retaken the House, making the issue moot. The last time they had it, there was a Republican Senate and President. Speaker Pelosi, who represented a district that would very much have benefitted from eliminating the cap, wasn’t going to give the Republicans a talking point on an issue she couldn’t win. But the cap will certainly go away if the party retakes the House while keeping the Senate and White House.
