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WASHINGTON — A group of House Republicans representing high-tax states is demanding an increase to the federal deduction for state and local taxes, also known as “SALT,” in order to support an extension of President-elect Donald Trump’s tax law next year.
The battle centers on the $10,000 limit on deductions for state and local taxes, which Republicans established in a 2017 tax cut bill. The policy hit hardest in states like New York, New Jersey and California. And with the GOP set to hold a paper-thin House majority of 220-215, some Republicans in those states say they’ll exert leverage to expand the tax break in service of their constituents.
“Two-seat majority; eight or 10 very SALT-y Republicans? You guys can do the math on that one,” Rep. Nick LaLota, R-N.Y., a proponent of a bigger SALT deduction, told NBC News.
LaLota, who represents a Long Island-based district where SALT is a major issue, clashed last year with GOP leaders who favor restricting the deduction. This week he said it’s not enough to double the deduction to $20,000, as some have proposed, making clear he wants “more” than that.
The GOP can afford no more than two defections to pass their planned bill, assuming Democrats are united in opposition. The pro-SALT Republicans are a minority in their party, but they hold a key advantage: Major portions of the 2017 tax law expire at the end of 2025, meaning the SALT cap would go away and tax filers could deduct unlimited amounts of state and local taxes on their federal returns absent congressional action.
“Quite frankly, with a majority of two, New York, New Jersey and California members really have a seat at the table here. Because an expiration of [the 2017 tax law] would completely eliminate [the cap on] SALT,” Rep. Nicole Malliotakis, R-N.Y., a member of the tax-writing Ways & Means Committee, said in an interview. “And we don’t want to have to take that route, right? We want to work with the committee, work with our conference, and get something that’s reasonable.”
The pro-SALT Republicans are on a collision course with colleagues who oppose an expansion of the deduction. They argue the provision gives states an incentive to increase local taxes, knowing their voters can use it to lower their federal tax bills.
“I think a big SALT tax deduction just encourages states to raise their own taxes,” said Rep. Thomas Massie, R-Ky.
Sen. Thom Tillis, R-N.C., a member of the Finance Committee that will write the tax legislation, said the tension over SALT is “an example” of the difficulty Republicans will have due to the narrow House majority.
“I think it would be fiscally irresponsible not to have a SALT cap,” said Tillis, who represents a state where taxpayers don’t use the deduction as much.
In September, Trump said he’d seek to “get SALT back” if elected to a second term, a turnaround from his prior position after he signed the $10,000 cap into law as president. But he didn’t offer specifics.
Malliotakis, said doubling the cap to $20,000 is “a little low,” particularly for New Yorkers.
She said she expects an eventual House bill to increase the SALT deduction, eliminate the “marriage penalty” (currently the $10,000 cap applies to both single and joint filers, which hurts married couples) and consider “some type of income cap” for who’s eligible to use the deduction, “so it’s truly focused on the middle class.”
Other Republicans worry that expanding the SALT deduction would add to the cost of a 2017 tax law extension that is already likely to add trillions of dollars to the national debt. Some prefer to keep the cost down or pursue other policies, like tax-rate cuts. Others note that the biggest benefits of SALT go to higher-income earners.
“That’s a giant tax break to wealthy people on the coast, so I’m not terribly sympathetic,” said Sen. Josh Hawley, R-Mo. “But maybe some of my colleagues who really, really want that big tax break would like to do something for working families. Maybe we can reach a compromise.”
Democrats are unlikely to have any say in the planned tax bill. Republicans are planning to advance it along party lines through the budget “reconciliation” process, which requires 50 votes for passage in the Senate, where Republicans will have a 53-seat majority.
Rep. Richard Neal, D-Mass., the top Democrat on the Ways & Means Committee, chuckled when asked about the GOP clash over SALT.
“I’m overjoyed with their problem,” Neal said.
Sahil Kapur is a senior national political reporter for NBC News.
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