SALT Cap Opponents Empowered in Narrow House Majority Next Year

A dwindling but vocal bloc of blue-state House GOP members is poised to challenge the limit on state and local tax deductions next year.

The GOP’s electoral sweep hands them the keys to the budget reconciliation process, which would allow them to renew a swath of the party’s 2017 tax cuts next year without fear of a filibuster in the Senate.

But a narrow majority in the House empowers members from high-tax states determined to help constituents with their tax bills. These lawmakers can threaten to buck the entire package without a concession on the issue.

“I need to have something in it related to SALT” to support the overall package, said Rep. Nicole Malliotakis, the lone Republican from New York City on the tax-writing Ways and Means Committee.

Republicans’ 2017 tax law imposed a $10,000 cap on the state-and-local taxes individuals and families could deduct from their federal taxes. Many saw it as a break that would penalize higher tax states that tend to lean Democratic. But Republicans from those blue states have been protesting ever since.

Options Malliotakis is pitching include doubling the SALT deduction for married couples who meet a means test or increasing the standard deduction. “There’s a lot on the table right now,” she said.

Increasing the amount taxpayers in high-tax states can deduct from their federal burdens comes down to fiscal and political math. The cap expires absent congressional action, and just a handful of Republican “no” votes could doom the entire package.

“This is not 2017, this is 2025, and we’re going to have a very tight margin, and there are more than enough members as part of the SALT caucus that will be able to exert influence,” said Rep. Mike Lawler (R-N.Y.). “If the tax bill does not address lifting the cap on SALT, I will not support it.”

Some Republicans did vote against the 2017 package because of SALT, though not enough to prevent passage. Final 2024 election votes are still being counted in the House, but GOP margins will be slimmer in the next Congress.

Republicans from high-tax jurisdictions have been trying to raise the cap for years, including in the current Congress, to no avail.

The ouster of GOP Reps. Marc Molinaro and Anthony D’Esposito from their New York City-area House seats spells the exit of some of the conference’s loudest voices in favor of lifting the cap.

Trump Factor

President-elect Donald Trump has pledged to lift the SALT cap. Democrats have scoffed at that promise given he signed the GOP law that enacted it in the first place.

“Trump has been on every side of the SALT cap,” said Rep. Richard Neal (Mass.), the top Democrat on the Ways and Means Committee. “They told everybody it was easy to resolve. Not so.”

SALT cap opponents hope Trump’s newfound backing helps them this time around. But lawmakers’ competing priorities could edge out a break for voters in blue states.

Capping the SALT deduction was a major revenue raiser helping pay for income cuts in the 2017 law. Scrapping it completely would add an additional $1.16 trillion in costs to an extension, according to the Penn-Wharton Budget model.

“It’s going to be a challenge,” said Rep. Jeff Van Drew (R-N.J.). Trump is “really committed to looking into it. That doesn’t mean it’s absolutely going to be done.”

Congress is more likely to extend the policy with a higher threshold under budget reconciliation procedures, according to tax practitioners and analysts.

“Few of us expect the SALT cap to be totally eliminated,” said Bruce Ely, a tax partner with Bradley Arant Boult Cummings LLP in Birmingham, Ala. “But most of us expect an increase in the cap, maybe to $25,000, and $50,000 for joint filers.”

With Republicans backing renewing virtually all of the tax cuts from the 2017 law, it could be a heavy lift. The Congressional Budget Office estimates that would cost $4.6 trillion over a decade.

“My personal preference is to continue the” current treatment, said incoming Senate Finance Chair Mike Crapo (R-Idaho).

But, he added, “everything is negotiable.”