SALT a hurdle as committees work to advance reconciliation bill

Bloomberg News

The $10,000 limit on state and local tax deductions is threatening to become a serious hurdle for a sweeping domestic policy bill that is expected to include an extension of the Tax Cuts and Jobs Act and perhaps other tax policy changes significant to the municipal market.

A meeting Wednesday between House Speaker Rep. Mike Johnson, R-La., and other House Republicans aimed at resolving a standoff within their caucus over the SALT cap ended without an agreement on how much to loosen the cap, according to reports. 

The meeting between Johnson and Republican lawmakers who are advocating to raise the deduction was convened in an effort to clear a big hurdle in GOP negotiations regarding President Donald Trump's "'big, beautiful' domestic policy bill," Politico reported. 

 The federal deduction on state and local taxes was capped at $10,000 as part of the 2017 TCJA. The cap, long a thorn in the side for both Democratic and Republican lawmakers from high-tax states, is set to expire at the end of this year absent any action. It's an important issue for the municipal bond market, as high-tax state issuers say the cap limits their financial flexibility while the buyside says that the cap increases demand for tax-exempt bonds.

 "I just left a meeting in the Speaker's office where we were discussing SALT and the importance of lifting the cap as part of this tax bill," Rep. Mike Lawler, R-N.Y., said in a video posted to his X account Wednesday evening. 

"It was a great conversation" with Johnson, House Majority Leader Rep. Steve Scalise, R-La., House Ways and Means Committee Chair Rep. Jason Smith, R-Mo., "and my New York colleagues among others," Lawler said in the video.

"We're [going to] continue the conversation and get this done as part of the bill," he said.

Timing is important as work on the bill is ongoing. The House Transportation and Infrastructure Committee advanced its portion of the bill just days ago.

Republicans' razor-thin House majority and the likelihood that Democrats will vote in lockstep against a bill including so many Republican tax priorities means that the GOP can't afford to lose support for legislation from within its own caucus.

In a statement prefacing the video in the X post, Lawler emphasized his position regarding the SALT cap and the bill.

"As we head into reconciliation and tax negotiations, I'm making it clear: I won't support a bill that doesn't lift the cap," Lawler said in the post. 

"It was a lively discussion, but we're still far away," Rep. Nick LaLota, R-N.Y., said according to Politico.

"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, and we will," Johnson said upon emerging from the meeting, according to Politico.