A congressional dispute over restoring a once-popular tax deduction may be enough to derail the “big, beautiful bill” that is key to enacting much of President Donald Trump’s second-term agenda. The dispute is occurring in an unlikely forum: the House Republican caucus, a body that is almost always in sync with the president.
What’s the dispute about?
At issue is the income-tax deduction for state and local taxes, commonly referred to as SALT. Trump’s 2017 tax cut bill severely limited the deduction, essentially enacting a tax hike for high-income Americans who live in states with the highest income and property tax rates.
The cap on the SALT deduction expires Jan. 1, along with the rest of the 2017 bill. Trump wants to make provisions of the 2017 bill permanent through sweeping new budget legislation — the “big, beautiful bill,” as he calls it — that would include at least $4 trillion in additional tax cuts and significant decreases in federal spending.
But at least five Republican House members say they’ll vote against the entire budget bill if the SALT cap isn’t lifted.
How SALT works
For decades, taxpayers who itemized their deductions were able to offset their taxable income by the amount they paid in state and local taxes. However, the 2017 bill capped that deduction at $10,000 for everyone except married taxpayers filing separately, who could claim only $5,000.
According to the House and Senate Joint Committee on Taxation, the cap mostly affected taxpayers with annual incomes of more than $200,000. They reap about 65% of the benefits of the SALT deduction, while accounting for only 12% of all taxpayers.
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Taxpayers earning more than $200,000 get 65% of the benefits from the state and local tax (SALT) deduction. They make up just 12% of all taxpayers.
Taxpayers from several high-tax states — such as New York, California, New Jersey, Maryland and the District of Columbia — felt the cap’s effects most acutely. The Internal Revenue Service says the cap added an average of $16,600 to taxable incomes nationwide.
However, in New York, for example, the average taxpayer who itemized deductions was able to claim $52,600 in SALT deductions before the cap took effect, and only $9,400 since then.
SALT deductions are projected to cost the federal government $23 billion in reduced income tax revenue in fiscal year 2025, according to the Joint Committee on Taxation. But if the cap expires, a committee report said, the treasury would take a $144.7 billion hit in 2026.
Who’s against the cap?
With a slim majority in the House, Speaker Mike Johnson and other members of the GOP leadership can afford to lose no more than four Republican votes to pass any bill without Democratic support. And with the tax bill still under scrutiny in several House committees, five Republicans have already announced they won’t vote for it unless the SALT cap is lifted, according to The Hill. They are Reps. Andrew Garbarino, Nick LaLota and Mike Lawler of New York, Young Kim of California and Tom Kean Jr. of New Jersey.
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Capped SALT deductions cost the federal government $23 billion a year in lost income-tax revenue. If the cap expires, those losses would increase to $144.7 billion.
“It is a hill I am willing to stake my entire congressional career on,” LaLota told Punchbowl News.
Lawler said: “I’ve been very clear with leadership and the administration from the very beginning. If there is not a fix for SALT, there is no bill.”
Even without the SALT dispute, the tax cut bill faced a tough road in the House.
Some moderate Republicans, especially those from swing districts, have said they could not support large cuts in safety-net programs such as Medicaid and food stamps. Some far-right members, on the other hand, say the bill still doesn’t go far enough in cutting federal spending.
“We have to address Medicaid,” Rep. Chip Roy, a Texas Republican, told CNN. “We have to address Medicaid. My colleagues, who are saying that they won’t touch it, are the same colleagues, by the way, who want their SALT caps increased. Somebody come back and show me your basic math.”
Is a compromise possible?
The budget bill is expected to go to two key committees next week, and lawmakers could add new language about SALT and other provisions. So far, no proposals have emerged that would eliminate the SALT cap.
However, some lawmakers have suggested raising the cap for some taxpayers, possibly those whose income is no more than $400,000 or perhaps $500,000.
Even that wouldn’t satisfy LaLota, who represents a congressional district on New York’s Long Island. “In that one proposal, $400,000 may be rich in Missouri, but it ain’t rich in Suffolk County,” he told the National Review. “So I think that approach just exacerbates the anti-blue state approach that existed eight years ago.”
