Vulnerable Republicans from high-tax states strike out again on SALT

A strong push by Republicans from New York, New Jersey and California to expand the federal deduction for state and local taxes died with a whimper in a procedural vote on Wednesday afternoon, depriving the lawmakers of a much-needed win as they head into the November elections.

The rejection of the rule — by 195-225 — to consider legislation that would provide the SALT relief was the latest setback for lawmakers from high-tax states who have tried repeatedly to relax or eliminate a $10,000 cap on the deduction imposed by Republicans’ 2017 tax law.

Their frustration was evident even before the vote.

“This House Republican majority was built by the contributions of New Yorkers, and this legislation would help those same New Yorkers see immediate tax relief,” said Rep. Mike Lawler (R-N.Y.), the chief sponsor of the bill, during the debate leading up to the vote. “And I encourage my Democratic colleagues to support it as well. They talked a good game but when they had complete control in the prior Congress, they failed to provide a fix.”

Lawler’s bill would remove what some lawmakers call a “marriage penalty” in the SALT deduction by doubling the amount married couples could write off to $20,000 for the 2023 tax year. The change would be limited to taxpayers making less than $500,000.

The lawmakers demanding that relief represent critical swing districts that have oversized national political implications because they can hand either party the majority in the House.

It was a prominent issue in Tuesday’s special election to fill George Santos’s former House seat on Long Island, which was won by Democrat Tom Suozzi.

In his race against GOP candidate Mazi Melesa Pilip, Suozzi knocked New York Republicans for failing to lift the cap this Congress.

But the issue transcends party lines. Democrats from high-tax states have also pushed legislation that would expand the SALT deduction, but indicated before Wednesday’s vote they considered Lawler’s plan a half-baked response to the problem.

“This badly flawed measure is a far cry for the middle-class tax relief, and is really the bare minimum we could do,” said Rep. Bill Pascrell (D-N.J.), who counts himself as a colleague of Lawler in the bipartisan coalition, known as the SALT Caucus. “What we have before us is a fig leaf to paper over that Republicans opposed middle-class tax relief.”

Two other SALT Caucus Democrats — Reps. Katie Porter (D-Calif.) and Jamie Raskin (D-Md.) — told POLITICO Tuesday night they weren’t sure yet whether they would ultimately vote for the Republican rule to allow for House consideration of Lawler’s bill. In the end, they didn’t.

Republicans who support the deduction cap argue that it serves as a disincentive to state and local government spending fueled by taxes that could be written off at the federal level.

Before the cap was implemented in 2017 taxpayers could deduct all of what they owed in state and local tax from their federal taxes. It’s a change that has hit New York, New Jersey and California homeowners particularly hard, since high-income couples can easily pay property taxes in the tens of thousands of dollars every year in those states.

Lawler’s legislation would cost the government around $11.7 billion, according to an analysis by the conservative-leaning Tax Foundation. The vast majority of the benefit — 77 percent — would go to higher earners, making above $200,000 a year, the analysis said.

The SALT Caucus has been a thorn in the side for both parties’ leadership.

Last summer, a coalition of Republicans from high-tax states blocked a sweeping GOP tax package reported from the House Ways and Means committee because it didn’t also include an increase in the deduction. And last month, four New York Republicans threatened to tank bipartisan tax legislation over similar concerns.

The latter conflict was resolved when the band of rabble rousers came to an accord with Speaker Mike Johnson’s office that Lawler’s bill would get a fair shake by the GOP conference.

In 2021, Democrats struggled to build a coalition around their sweeping climate, tax and healthcare agenda because a handful of their members demanded larger SALT deductions — which have otherwise been considered a tax break for the wealthy and unpalatable to a wide swath of the Democratic caucus. That effort failed too.

Despite the crash of Lawler’s bill, New Jersey, California and New York Republicans are eyeing another big push for SALT tax breaks in 2025 — when most of the 2017 tax cuts, including the $10,000 SALT cap, are set to expire.

“2025 is the year for SALT,” said Rep. Nicole Malliotakis (R-N.Y.) on CNN Tuesday night. “I think that’s where the New York members are going to have their most leverage.”