Republicans Face Internal Strife Over SALT Cap Extension

As President-elect Donald Trump's inauguration approaches, some House Republicans are pushing for a swift extension of the GOP's 2017 tax legislation. However, the party is facing internal strife over the extension of the State and Local Tax (SALT) cap, which limits the amount of state and local taxes that can be deducted on federal income tax returns to $10,000 per year ($5,000 for married filing separately). The SALT cap has become a contentious issue, with some Republicans ready to derail Trump's tax cuts over it.

The SALT cap, introduced by the Tax Cuts and Jobs Act (TCJA), disproportionately affects high-income individuals living in high-tax states, many of which are Democratic strongholds. According to a report by the Treasury, fully extending Trump's expiring tax cuts, including the SALT cap, would have a significant impact on the tax burden of high-income individuals in high-tax states. The report found that the top 0.1% of earners, who are more likely to live in these states, would receive a 4.2% reduction in their after-tax income, which translates to an average tax savings of about $314,000 per year. This is a substantial benefit for these individuals, but it is important to note that it comes at the expense of other taxpayers and contributes to the federal budget deficit.



House Republicans, led by Chairman Jason Smith (R-Mo.), are advocating for the extension of the TCJA provisions, including the SALT cap. However, this stance has drawn criticism from Democrats, who argue that the SALT cap disproportionately benefits wealthy individuals and disadvantages middle-class families in high-tax states. Richard Neal (D-Mass.), the ranking member of the House Ways and Means Committee, stated, "We know that most of these [tax] cuts went to people at the very top."

The political dynamics around the SALT cap could complicate the broader tax reform debate, as Democrats may use the issue to argue against extending the TCJA provisions. The cost of fully extending Trump's expiring tax cuts is estimated to be $4.2 trillion over 10 years, with the top 0.1% of earners receiving a 4.2% reduction in taxes, compared to an average family savings of 2.2%. This disparity could fuel Democratic opposition to the extension of the TCJA provisions, potentially complicating the political landscape as Republicans push for the extension of the 2017 tax legislation.

In conclusion, the SALT cap has become a contentious issue among Republicans, with some lawmakers ready to derail Trump's tax cuts over it. The political dynamics around the SALT cap could significantly influence the broader tax reform debate, as Democrats may use the issue to argue against extending the TCJA provisions. The SALT cap's disproportionate impact on high-tax states and wealthy individuals could fuel Democratic opposition to the extension of the TCJA provisions, potentially complicating the political landscape as Republicans push for the extension of the 2017 tax legislation.