Intra-Party Fight Over SALT Cap
Some New York Republicans are fighting for their constituents and against the GOP leadership.
Joseph Zeballos-Roig and Kadia Goba reporting for SEMAFOR (“New York Republicans to House leaders: Hold the SALT at your own risk“):
Tensions are flaring between House Republicans as lawmakers from New York have threatened to oppose a major upcoming tax bill unless it raises the current $10,000 cap on the State and Local Tax Deduction, a pricey proposition that many in the party oppose.
Jason Smith, chair of the House Ways and Means Committee, has warned the New Yorkers that if they don’t relent, he will publicly accuse them of pushing a tax cut for the wealthy, per two House aides familiar with the situation. The SALT deduction, as it’s commonly called, is often criticized for mainly benefitting upper-income residents of high-tax blue states, though supporters argue it helps middle-class households as well.
But Smith’s hardball approach has created friction between him and Speaker Kevin McCarthy, who’s more interested in assembling a tax package that has the votes to pass the House than waging a battle over policy, one of the aides said.
For now, the SALT rebellion appears to be holding up the tax package — which includes a number of key GOP business tax priorities — with no obvious end in sight.
“SALT is the biggest issue for my constituents. It’s an issue I ran on. It’s an issue I talked about,” Rep. Mike Lawler, who represents a district in New York’s Hudson Valley, told Semafor. “And so as far as I’m concerned, any tax bill that would seek to extend any provisions that does not include a fix for salt does not have my vote, period.”
The delegation, though, is split on negotiating tactics. Sources familiar with the discussions said sophomore members have been more measured with committee leadership, while the freshmen have been more direct and confrontational. “They’re New Yorkers. They can be loud,” said one of the staffers granted anonymity to speak freely.
Rep. Nick LaLota of New York said the talks have been a “slow grind” and acknowledged that he and his fellow SALT holdouts “may use some words that one wouldn’t use in church during some of these meetings.”
A GOP Ways and Means spokesperson declined to comment. A spokesperson for McCarthy did not return a request to comment.
The cap on state and local tax deductions seemed to come out of nowhere and was widely seen as a “Screw You” from Trump and the Republicans to New York and other high-tax blue states. Because of Virginia’s weird, overlapping tax structure, the change hit my household pretty hard. (There were also various other write-offs, such as professional expenses, that went away as well and had a minor impact on us.)
At the same time, the politics were largely good. It’s simply undeniable that those who pay more than $10,000 in state and local taxes are doing pretty well economically. The vast majority of Americans don’t even file the long form and take the standard deduction—which, incidentally, went up in the same bill.
Like ethanol subsidies in Iowa or the fight over whether to store nuclear waste in Nevada’s Yucca Mountain, it seems the SALT cap is one of the last great regional policy obsessions capable of transcending party lines in American politics. It’s bound to be a pain for both Democrats and Republicans in the near future, so long as their majorities depend on members from the New York suburbs.
Republicans imposed the $10,000 cap in order to help pay for their 2017 tax bill, angering voters in high-tax New York and New Jersey. A small-but-potent bloc of Democrats from those states spent the first two years of President Biden’s term demanding that the cap be lifted — and at points threatened to imperil their party’s expansive economic agenda if it wasn’t, though they ultimately backed down.
Today, Republicans owe their own slim majority in large part to their gains in New York, which has turned SALT into a sticking point for their conference.
“Dealing with SALT was a huge headache for us. We figured it out and ultimately were able to keep everyone together,” a House Democratic aide told Semafor. “When [Republicans] are casting about for who to blame, they can look in the mirror because all of these issues about SALT go back to the way that they wrote the Tax Cuts and Jobs Act.”
Honestly, this is an issue that, not all that long ago, would have simply been voted on based on local politics. Representatives of more affluent, high-tax districts would have voted to raise the cap and everyone else would have voted to keep it where it is. Or, it would be a point of negotiation with compromises on other issues achieving an equilibrium that everyone could live with. There’s simply no reason that this should be a party-line issue.
Even if Republicans do manage to put down the SALT rebellion for now, the issue is bound to crop up again, since Congress will have to renegotiate the tax code when many of the GOP’s 2017 reforms sunset after 2025. Those talks will likely include a debate over whether to keep or ditch the SALT cap, which is one of the many provisions set to expire.
Rep. Nicole Malliotakis told Semafor that if she and her fellow New York Republicans can’t win SALT relief now, they should keep their eye on 2025. “We’ll have the most leverage” then, she said.
Barring a recession, my strong guess is that Democrats will have retaken the House, making the issue moot. The last time they had it, there was a Republican Senate and President. Speaker Pelosi, who represented a district that would very much have benefitted from eliminating the cap, wasn’t going to give the Republicans a talking point on an issue she couldn’t win. But the cap will certainly go away if the party retakes the House while keeping the Senate and White House.
If they don’t relent, he’ll accuse these Republican reps of being Republican?
After the trump tax cuts passed their was much pissing and moaning among my erstwhile R friends that had substantial real estate holdings and the income to support the same. One complained that because of the SALT changes he was paying more in taxes after the trump tax law.
I laughed.
I suppose you could make that argument. Or you could say that states that contribute more to the Federal treasury also are usually states that build more of their own roads, are better at keeping pollution out of their water supplies, take better care of the health and welfare of their citizens, etc, and that these things cost money. The states with low taxes, by contrast, provide crap services, crap schools, crap healthcare and have an actual policy of trying to hold their working class citizens wages as low as possible. So yes, you can buy a house for $165K in Midnight, MS and it won’t have much in the way of real estate taxes, but that’s because the Federal Government, aka the Blue states, serve as the backstop for every failed institution in MS.
[Flame off]
The politics are very interesting here. New Yorkers will definitely hold it against these Repubs who said, “vote for me, I’m on the inside and can get things done on SALT the Dems can’t”. And it won’t be just because they failed. It’s because they will have actually voted to keep the SALT cuts in place. The Repubs need the vote of every single member if they are to pass their bill because they won’t negotiate with the Dems in any way, shape, or form. So these Repubs won’t even be able to say, “Yeah, but I voted against it!”. Their Dem opponents will be saying, “They said they would repeal but they actively voted to keep it.”
I have a personal connection to Rep. LaLota–prior to being elected to Congress he served on a town board with my mother. It doesn’t surprise me he’d be a SALT holdout as he represents Suffolk County where this is definitely a middle-class issue.
I’m not sure that’s necessarily the case. Again, in places like Long Island, housing prices/taxes even for the middle class are high. Heck, here in Western NY, my wife and I live in a modest house in a middle-class suburb and got close if not passed the $10K mark on the reg.
To @MarkedMan’s point LaLota definitely fits into the “vote for me, I’m on the inside and can get things done on SALT the Dems can’t” wing of the party. That said, I’m not convinced that if he can’t get his party to move on the topic, it will have that much of a political effect on his future. But it’s definitely something to watch.
Jay Powell, career Republican, may have already taken care of that. Kevin Drum notes that it takes a year for rate hikes to affect unemployment. He expects a slowdown starting in December. Inflation seems largely over, but Powell has seemed determined to have a recession whether we need one or not.
@gVOR10: Leaving aside the delusional Left inflation denialists, Mr Powell, “career Republican” (who ironically backed policies during Trump’s period which were not party-line, quite the contrary, being a technocrat but then such things get effaced from memory by the motivated reasoning of the ideolical) does not make rate decisions, rather the Federal Open Market Committee makes by consensus vote, and by its multi-year rotating nature, is hardly the preserve of party-political decision making.
Regardless, Drum’s inflation analyses are complete rubbish being rooted in a rather disappointing combination of team rooting bias, innumeracy as to how to apply properly deflators in analysis and a large dollop of motivated reasoning (his ridiculous fixed trend lines). Pity really, normally while he has a tendency to blinkered monocausalism in his analysis, he’s not normally
Drum’s constant going on about Fed and when it “starts” to take effect is very simply wrong, based on misreading and misunderstanding of technical literature and his own biases.
If one wants to read useful discussion of inflation, and you desire a Lefty side, but one well informed and an excellent monetary policy informed economist, the one should read Krugman, as his discussion of “Teams” and indeed the unfortunate influence of Motivated Reasoning whic his useful (and I note I agree with his view that motivated reasoning has lead various “political teams” to deviate from solid economic theory, both Left and Right of course. Equally his note on UK inflation although he neglects to note that Bank of England has been noticeably more feeble than ECB or Fed in its inflation response, or his more recent note debating on impact, although for me he is splitting hair in hesitating on form of Fed impact given one has counter-factual UK, Turkish evidence – regardless regarding Fed action as necessary and proper, and stating it.
As Krugman does not pull punches, you can be assured that if “career Republican” was an issue it would have been raised.
But the technocrats dislike party politicalism.
Sure is a different time than I grew up in. My first thought was to wonder why Republicans were against damaging the Strategic Arms Limitation Treaty (seriously).
On the one hand it’s nice to see that representatives actually will represent the interests of their constituents instead of dumb culture war stuff and negative partisanship. On the downside, the SALT deduction is bad policy IMO, and should be eliminated along with a host of other bad tax policy.
@Andy: Not having an extensive understanding the deducation, in an economical theoretical view, this does not seem per se a “Bad Policy” in a context where the US Federal net transfers to the other states seem to be doing the work of a kind of geographical redistribution and carrying the water for lower sub-geography taxation in said areas. The higher tax rebate then begins to look as a compensatory mechanism for said geographies doing things that in other areas the US Federal taxation is doing.
This may not be correct, but at a top level economic analysis it looks plausible to me and does not then look like ‘per se’ a bad policy except to the extent one desires to force a leveling federalisation.
@Lounsbury:
It’s not really about geography. Only people who itemize deductions can take advantage of the tax, and the benefit is not limited to income taxes only – you can use it to deduct income or other types of taxes like sales taxes.
But since it requires itemization, it’s only available to people who already have a lot of deductions. For the vast majority of Americans, the standard deduction (~$25k for a household)- which is available to everyone – gets the lower tax bill. Only the wealthy or those in unusual tax situations (like having a very expensive mortgage) can really benefit. And the current $10k cap is already very generous – raising it or eliminating the cap would only help the very wealthy.
Fundamentally though, I don’t think there is much good reason to subsidize wealthy taxpapayers, or subsidize certain state and local tax policies over others via a federal benefit.
If I were King for a day, I’d probably completely overhaul our tax code, but if I were limited to tweaks, I would work to eliminate a lot of itemized deductions and make up for that with a higher standard deduction.
I’m ok with the SALT cap. I’m a Democrat, after all. But I think it’s out of character for Republicans. I furthermore think that R’s lost several seats in CA, with the SALT cap as a primary reason. For most R’s, Trump was someone who delivered on their priorities, but not R’s in CA. But in typical Trumpian fashion, he didn’t care about CA because the electoral votes for his reelection were out of reach, and who cares about the House.
So, yeah, this is delicious. This is now getting into tax policy, which Republicans traditionally were all on the same page – the “lower taxes” page.