During his third straight campaign for president, Donald Trump made a lot of expensive promises. He said he would extend the tax cuts from 2017 and add new breaks for people who work extra, get tips, get Social Security, and have big state and local tax bills.
Republicans are very upset about the promise to raise the limit on the state-and-local-tax deduction (SALT deduction). This is because reducing the SALT deduction was one of the main ways that lower corporate and individual income-tax rates were paid for in 2017.
But starting in 2025, Republicans will only have a one-vote majority in the House of Representatives. To pass any new tax laws, they will need the votes of Republicans from high-tax places like New York and California.
So, on Thursday, Trump’s top economic assistant, Steven Moore, suggested a possible middle ground: raising the limit on SALT deductions from $10,000 to $20,000.
It was suggested by Republicans in the House that the cap should be raised to $20,000 for married taxpayers to get rid of the “marriage penalty” of a $10,000 cap for everyone. Analysts say that would cost the Treasury about $160 billion over 10 years.
The Penn Wharton Budget Model says it would cost $1.1 trillion to get rid of the cap for good. That’s a lot less than that.
‘If one adds up reasonable estimates and extends them over a ten-year period, the total cost of Trump’s tax promises could amount to something of the order of $7 [trillion] to $10 trillion.’
James Lucier, Capital Alpha Partners
Some people who support Trump and are strict on the budget also want to raise the cap only for middle- and working-class earners. The cost would be cut by $107 billion if only people making less than $500,000 a year were exempt from the SALT cap. This cap limits the total amount of state and local taxes, including property taxes, that people can claim on their federal income taxes.
Steve Bannon, a former adviser to Trump, has pushed hard for raising taxes on the rich and businesses to pay for extending tax cuts and giving poor people new breaks.
He said on his show “War Room” last week, “If the ox has to get gored, it has to come from the rich.” “It has to come from the billionaires.” It can’t come from the middle class. It can’t come from the working class.
Deficit hawks in the House and Senate, like Texas Republican Rep. Chip Roy, are also adamant that any new tax cuts must be accompanied by cuts in spending, or they will not back them.
“I’m not going to agree to all of these huge tax cuts until we talk about what we’re going to do about cutting spending, being careful with spending, and reorganizing the whole government,” Roy told Bannon on Tuesday.
There will likely be 220 Republicans in the House instead of 215 Democrats when special elections are held in the spring to fill the places left open by Republicans who left to work for Trump.
Still, Republicans can only lose two votes if they want to pass a tax package that everyone agrees on. To do that, they need to please both the SALT-first Republicans who usually represent blue-state districts and the budget hawks in their own party.
That’s the problem GOP leaders are trying to solve as they figure out how much of a deficit they are willing to accept as they write their tax bill to follow the so-called budget-reconciliation process. This process lets Republicans pass the bill with just 51 votes in the Senate instead of the necessary 60 votes to stop a filibuster.
“If reasonable estimates are added up and spread out over ten years, Trump’s tax promises could cost somewhere between $7 trillion and $10 trillion,” policy analyst James Lucier at Capital Alpha Partners wrote in a note to clients on Tuesday.
Lucier said that Republicans from Texas like Roy and House Budget Committee Chair Jodey Arrington want to see budget-neutral tax legislation. If Trump’s plans to cut taxes are taken seriously, this would mean huge spending cuts, including to Social Security and Medicare.
The Republicans have a theoretical edge of only five seats in the House of Representatives (220-215) and an actual edge of only two seats (217-215) until at least April 1, 2025, Lucier said. “We think that pressure from members like Arrington, Roy, and a significant number of their House colleagues will keep the total amount of debt to something much closer to zero than $10 trillion.”
A way to keep it close to zero would be to cut back on tax breaks for the wealthy or even raise taxes on businesses a little, which is something that Republican House Ways and Means Committee Chair Jason Smith of Missouri suggested earlier this year.
