The delicate balance reached in the House may be threatened by changes to state and local tax deductions.
Two weeks after the House narrowly passed President Donald Trump’s massive tax plan, the Senate has started to make changes to the legislation’s structure. Some are now cautioning that the structure may collapse due to changes in that chamber.
A House agreement that increased the amount of state and local taxes that Americans can deduct from their federal returns has drawn harsh criticism from senators.
The bill’s House version increased the state and local tax deduction maximum from $10,000 to $40,000, with the advantage gradually disappearing for people earning over $500,000.
Although the measure is unpopular in the Senate, it was a crucial step in gaining the support of Republicans from states with relatively high taxes, such as California and New York.
On Wednesday, Mike Crapo, the chairman of the Senate Finance Committee from Idaho, told reporters, “There isn’t a strong mood in the Senate Republican caucus right now to do $353 billion for states that basically the other states subsidize, because there isn’t a single [Republican] senator from New York, New Jersey, or California.”
In addition to acknowledging that many states with higher taxes—particularly on highly valued urban and suburban properties—are net contributors to the federal coffers rather than net recipients of federal funds, proponents of increasing or even eliminating the cap on the SALT deduction contend that doing so would address “double taxation” of their constituents.
Any change may jeopardize Republicans’ self-imposed July 4 deadline to get the law on Trump’s desk and blow up months of cautious coalition building in the House.
Republican Representative Nick LaLota of New York tweeted on X Wednesday, “It’s like unearthing buried radioactive waste if the Senate unwinds the House’s $40K SALT deal – reckless and sure to contaminate the whole One Big Beautiful Bill.” “Best to leave it alone.”
Since a cap was imposed on such deductions in a 2017 tax code rewrite that was the hallmark piece of legislation during Trump’s first term, the issue has caused division within the Republican Congress.
The cap’s savings were used to implement a number of short-term tax benefits for individuals and pass-through companies that will cease at the end of the year, as well as to permanently lower the corporation tax rate.
Republicans were able to lose the votes of Republicans from California and New York without the entire package being sunk because they had a considerably greater majority in the House back then. House leadership had to make concessions to these lawmakers this year since they only had a three-vote majority.
Rep. Mike Lawler of New York told X, “Let’s be clear – no SALT, no deal,” echoing the sentiment of other Republicans in the SALT caucus. “If the Senate changes the negotiated number of $40,000 – it will derail final passage of the bill.”
The argument was emphasized in a joint statement released Thursday by Republican Representatives Andrew Garbarino of New York and Young Kim of California. “Hardworking families we represent are penalized by the SALT cap … the Senate would be remiss to forget that the path to 218 – and delivering for the American people – runs through the SALT caucus.”
A bill must receive 218 votes in order to pass the House of Representatives.
However, Senate Republicans have their own ideas for the measure and want to make a number of business-tax incentives permanent. The House version would have these breaks expire after five years, and maintaining the $10,000 cap on SALT deductions may help pay for them.
Following a meeting with the president, Wisconsin Republican Sen. Ron Johnson told reporters Wednesday that Trump was amenable to a range of strategies that would allow the bill to pass.
With just a dozen legislative days left before Congress heads home for the Fourth of July break, Senate Majority Leader John Thune of South Dakota also told reporters that compromise will be required to pass a law.
“We understand it’s about 51 and 218,” Thune said, referring to the number of votes Republicans need to obtain in the Senate and the House, respectively, to get the bill on Trump’s desk, even if the SALT language will probably need to alter.
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