SALT deduction

The hard-fought increase to the cap on state and local tax deductions that was instrumental to passing the House GOP tax bill is under fire in the Senate.

The Senate returns to Washington with a ticking deadline clock to turn the House's One Big Beautiful Bill Act into law with questions remaining about the future of the SALT cap deduction and green energy tax credits.

As the budget reconciliation lurches through Congress towards a vote, the cap on state and local taxes remains a key bargaining chip while data shows state tax revenue declining and an uncertain future for the pass-through-entity workarounds adopted by more than 30 states.

Muni advocates are watching the SALT cap negotiations closely, as the outcome may be influence if other revenue raisers, like axing the muni tax exemption, come into play.

"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," Rep. Mike Lawler said.

The House Committee on Transportation and Infrastructure is in the early stages of hammering out a surface transportation bill designed to prop up the Highway Trust Fund while House Ways and Means tinkers with a tax deal.

The Senate move provides an alternative pathway towards a final budget agreement as the House wrestles with an approach that could include key tax policy changes for the muni market.

The lobby trying to protect the tax exemption is working overtime as the threat appears very real.

A record-breaking year for bond issuance will likely be followed by another strong year for munis even as the threat of ending the tax-exempt status appears in writing within the halls of Congress.

Lifting the SALT cap is one of several thorny issues Republicans hope to iron out as part of a larger reconciliation bill by March.