Blue State Lawmakers Renew Fight Over State and Local Tax Deductions in Trump’s ‘Big Beautiful’ Spending Bill

New York Republicans will meet on Wednesday to discuss a path forward to game out how they can pressure House conservatives to go along with an increase in the State and Local Tax Deduction cap as part of President Trump’s “one big beautiful bill.” Any increase in the SALT cap would overwhelmingly benefit blue states and reduce revenues, even as debt hawks are looking to craft a deficit-neutral bill. The SALT cap fight has been a top priority for vulnerable suburban GOP lawmakers in blue states across the country. Congressman Mike Lawler, who is widely expected to run for New York governor next year, said in his first ad of the 2024 campaign that he was working with a bipartisan group to raise the SALT cap. The SALT deduction was capped at $10,000 for both individuals and couples regardless of income as part of Mr. Trump’s 2017 tax cut package. The cap — which overwhelmingly hurt wealthier homeowners in high-tax states like New York, New Jersey, and California — was one of the few revenue generators included in that 2017 bill, considering there was no limit on deducting state and local taxes from federal incomes taxes beforehand.Blue-state Republican lawmakers have been trying for years to twist arms and get some kind of win for their constituents. Mr. Lawler — who says he will not vote for any tax legislation that fails to raise the SALT deduction cap — got a bill on the floor last year to eliminate what he says is a “marriage penalty.” That legislation would have kept the $10,000 cap for individuals, but would have established a $20,000 limit for couples.The legislation was defeated because House conservatives said it was a giveaway to blue states. According to Bloomberg News, some House Republican leaders were considering a $25,000 deduction cap earlier this year, though the Republican co-leaders of the SALT caucus said that was not enough. “A $25,000 SALT cap does not get close to bringing relief to families unfairly burdened by the current cap,” Congressman Andrew Garbarino of Long Island and Congresswoman Young Kim of Orange County, California, said in a joint statement. “We remain committed to working with our colleagues to fulfill President Trump’s promise to address this pressing issue, and we look forward to a serious discussion.” According to the Bipartisan Policy Center, the SALT deduction is overwhelmingly being used by individuals in deep-blue states. Of the top 15 congressional districts where the SALT deduction was most often taken by filers, 13 were either in New York or California. In the 50 congressional districts where the deduction is most used, 40 of them are in New York, California, New Jersey, or Illinois.Increases in the deduction cap would benefit those wealthy blue staters at a time when Republicans have just a three-seat House majority that includes dozens of conservatives who say they don’t want to add even a penny to the deficit as part of the legislation.Not only would a SALT cap increase disproportionately aid blue states, but the vast majority of the relief would go to the wealthiest individuals in those high-tax areas. One study by the Tax Policy Center found that three-quarters of that tax relief would go to the top 10 percent of households if the cap was raised even to $25,000. A total repeal of the SALT cap — which Republican leadership has said is not on the table — would put about $35,000 extra each year into the pockets of those who make more than $1 million annually. According to a study by the Wharton School at the University of Pennsylvania, even the more modest SALT reform ideas would reduce federal revenues drastically. Mr. Lawler’s proposal to eliminate the “marriage penalty” and allow couples to deduct up to $20,000 while keeping the $10,000 cap for individuals would cut federal revenues by $32 billion over a decade. Mr. Lawler’s dream deal — a $100,000 SALT deduction cap for individuals and a $200,000 deduction cap for couples — has the support of three Democrats, though it’s almost impossible to see any other Democratic lawmakers signing on to Mr. Trump’s “one big beautiful bill” in exchange for a SALT deduction cap increase of that magnitude. That steep a hike in the deduction cap would reduce revenues by at least $134 billion between now and 2034.

Blue State Lawmakers Renew Fight Over State and Local Tax Deductions in Trump’s ‘Big Beautiful’ Spending Bill

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