Republicans considering big boost to cap on federal deduction for state and local taxes

House Republicans are discussing a significant increase to the $10,000 cap on the federal tax deduction for state and local taxes in a bid to keep blue state GOP lawmakers on board with a broader tax and spending bill.

Raising the cap for the deduction, which is known as SALT, is anathema to most Republicans, who consider it a subsidy to blue states that have high state and local taxes.

But with Republicans from New York, New Jersey and California threatening to vote against any tax bill that does not lift the cap, doing so has become a necessary compromise in the negotiations over President Trump’s “big, beautiful bill.”

House Speaker Mike Johnson, Majority Leader Steve Scalise and Ways and Means Chair Jason Smith met with Republican members of the SALT Caucus on Tuesday evening to discuss a potential compromise that they can include in the party’s sweeping budget reconciliation package that will carry the bulk of Mr. Trump’s agenda.

“We’re getting very close,” said Mr. Johnson, Louisiana Republican. “We heard some very valuable input from the members of the SALT states and completely understand their priorities, and we’re trying to work that in and find consensus on the right number.”

Mr. Johnson said Republicans would have further conversations on the issue on Thursday.

Though none of the meeting participants would disclose any specific cap numbers under discussion, Rep. Nicole Malliotakis said the SALT Caucus proposed a figure above $25,000, which the group previously rejected as too low to provide needed relief for their constituents.

“I’m worried about the folks making $500,000 or less. Others may have different goals,” the New York Republican said. “But I think that if we can cover a majority of our middle-class families, it is going to be a win.”

Ms. Malliotakis has been more amenable to compromise than some of her SALT Caucus colleagues, who have drawn harder lines with their demands.

Fellow New York Rep. Nick LaLota counts himself among a core group of five SALT Caucus Republicans, along with Reps. Mike Lawler and Andrew Garbarino of New York, Tom Kean of New Jersey and Young Kim of California, who are resolved “to make whole as many of our middle class families as possible.”

“The levels for each of the five of us are a little bit different on what solves the day for as many middle-class families as possible, but we’re going to stick together to get as much progress as possible,” he said. 

Ms. Malliotakis said the SALT Caucus will present its proposal to the Ways and Means Committee, of which she is also a member, on Thursday. 

She said details of the figure they’re discussing have yet to be worked out, like whether there should be income limits associated with a higher cap or whether it would apply to both individual and joint filers.

Lawmakers have complained that the current $10,000 cap creates a marriage penalty because joint filers are subject to the same cap as individual filers.

Mr. LaLota said that if the cap was high enough, there would be less of a need to offer an extra incentive for married couples. 

“If, for some reason, we got to, let’s say $250,000, there would be a whole lot less of a need in my district to fight for a bifurcated level for joint filers,” he said. 

Mr. Scalise, Louisiana Republican, said there were several numbers discussed during Tuesday’s meeting because income levels vary across the members’ districts and so their demands for SALT relief do too.

The goal is to reach a compromise on SALT this week so that the Ways and Means Committee can mark up the tax portion of the package next week, he said. 

“There’s a consensus that we have to come to an agreement to fix it. And the president agrees with that, too,” Mr. Scalise said. “The exact number, nobody’s been able to lock down. But we’re getting closer. So we just got to keep working, which we will.”

Once GOP leaders and tax writers on the Ways and Means Committee reach an agreement with the SALT Caucus, they will still have to sell hardline conservatives on raising the cap. 

“I don’t think we should be subsidizing blue states, or, frankly, red states,” Rep. Chip Roy, Texas Republican said, noting some property taxpayers in his state could benefit from a higher SALT cap.

Mr. Roy said he’s open to accepting a SALT compromise, but the cost matters because conservatives won’t vote for a bill that adds to the deficit, after factoring in an estimated 2.5% economic growth from tax cuts and regulatory relief that will be included in the bill.

“If that’s what they’ve got to do to get the votes, then they’re going to have to go find a whole lot of savings somewhere else, because that won’t be cheap,” he said.

“Where are you going to make that up?” Mr. Roy added. “Are they going to raise marginal tax rates on somebody? Are they going to cut spending somewhere else? They’re the same general crew that doesn’t really want to touch Medicaid.”

The SALT Caucus members are not oblivious that their demands could create issues for other Republicans and the overall math for keeping the bill from adding to the deficit.