SALT cap fight ramps up

WASHINGTON — An influential group of five House Republicans from high-tax states is threatening to hold up a major tax package that is a top priority for President-elect Donald Trump unless they get a significant boost to the amount that their constituents can deduct from federal income taxes to reflect state and local taxes already paid.

As negotiations over a major tax cuts bill get underway, they are also drawing a firm line: Simply doubling the maximum allowed deduction from the current $10,000 cap to $20,000, they say, is not enough. 

“The $20,000 is a nonstarter,” Rep. Nick LaLota, R-N.Y., told CNBC. “It’s almost laughable. It’s way too low to earn our vote.”

LaLota is one of 16 members of a congressional state and local tax, or SALT, caucus who attended a recent meeting with Trump at his Florida resort, Mar-a-Lago. There, Trump 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, according to LaLota and his fellow New York GOP Rep. Andrew Garbarino.

The group plans to use House Republicans’ narrow, four-seat majority to increase its own leverage.

Specifically, LaLota is part of a bloc of five Republican House members who plan to stick together and oppose any broader Trump tax cut package unless it contains significant changes to the current SALT cap provisions.

Rounding out this group are Reps. Mike Lawler, of New York, Rep. Tom Kean Jr., of New Jersey, and Rep. Young Kim, of California, according to LaLota and Garbarino.

Under the current makeup of the House, Republican Speaker Mike Johnson, of Louisiana, can afford to lose only two GOP votes and still pass a piece of legislation along party lines. As a five-vote bloc, these SALT Republicans could effectively sink the tax cut bill that is expected to be Trump’s top legislative priority.

A spokesman for Johnson did not reply to a request for comment on the demands from the SALT bloc.

While the larger SALT caucus has secured support for a SALT cap hike from Trump, they still need to win over hundreds of their fellow Republicans who oppose lifting the cap.

One of the most common objections to raising the SALT cap above $10,000 is that the benefits of a higher cap would mostly accrue to wealthier Americans. Another is that lifting the current limit could add billions of dollars to the cost of any tax bill, depending upon how it is structured.

The Institute on Taxation and Economic Policy estimates that households with incomes in the top 20% would disproportionately benefit from any effort to raise the maximum allowable deductions for state and local taxes. That’s because these households are more likely to have higher state tax bills and to owe more in federal income taxes.

Garbarino said that while his constituents might have incomes that are high compared with the rest of the country, in the context of the high cost of living in their areas, these households are middle-class.

“I don’t have a very wealthy district,” he said in an interview with CNBC. “I’m mostly on the south shore of Long Island, mostly cops, firemen from New York City, teachers, other blue-collar workers, union guys. They all got hurt when this was put into place back in 2017, and we’re looking to right that wrong.”

The broader SALT caucus has yet to propose exactly what they think the cap should be, and they are looking at data to find a proposal that would ensure that the benefits go to the middle class, according to LaLota, Garbarino and Rep. Nicole Malliotakis, R-N.Y.

LaLota said there are two options he prefers. One is that Congress could raise the cap to a yet-to-be-determined amount, and then allow joint filers to deduct twice that.

Alternatively, Congress could remove the cap altogether but limit the deduction to those households with income below a specific threshold.