In the distant past, Republican moderates were people like Senators Pete Domenici of New Mexico and Bob Packwood of Oregon who preached fiscal responsibility and were reasonably tolerant of the welfare state. Today, Republican moderates are people like Senator Ron Johnson of Wisconsin and Representative Mike Lawler of New York who will gladly accept a $4.2 trillion tax cut, most of which benefits households earning $217,000 or more (according to the nonprofit Tax Policy Center), plus Medicaid cuts projected, conservatively, to kill 51,000 people (according to the Yale School of Public Health).
All Johnson, Lawler, and other Republican moderates ask in return is to expand the budget deficit (which is already more than doubled under the bill) by another half-trillion or so in order to kill off the only progressive component to Trump’s 2017 tax law. With moderates like these, who needs extremists?
What Republican moderates seek to reinstate, as much as they possibly can, is the deduction on federal tax returns for state and local tax payments, also known as SALT. Before 2018, these tax payments were fully deductible. The 2017 tax law capped the deductible amount at $10,000. This change was progressive because most of the people who paid $10,000 or more in state and local taxes were in the top 1 percent of the nation’s income distribution, and nearly all of them were in the top 5 percent. For the vast majority of Americans below the 95th income percentile, state and local taxes remained fully deductible.
Full SALT deductibility was ended to partially offset the cost of the 2017 tax bill’s giveaways to corporations and wealthy individuals. In effect, the law traded in one regressive tax break (SALT) in exchange for several other much costlier regressive tax breaks (top corporate tax rate lowered from 35 percent to 21 percent; top marginal income tax rate lowered from 39.6 percent to 37 percent; and a 20 percent “pass through” deduction for business owners).
The politics of the SALT deduction are a little wacky. Its traditional constituency is liberal. That’s because the deduction’s benefits, though regressive, flow mostly to the much-despised coastal elites who live in high-tax blue states. Liberals argued (some still do) that limiting the SALT deduction put downward pressure on spending at the state and local level, which is true. Conservatives answered that taxpayers shouldn’t have to subsidize city and state governments in wealthier locales where they don’t live, which is also true.
Some of the most cogent critiques of the SALT deduction’s regressive effects come from conservative commentators like Charles Lane of the Free Press and Ken Girardin of the Manhattan Institute. For the record, I’ve opposed the SALT deduction since the 1980s, when its elimination was briefly considered for what eventually became the 1986 tax reform law. To my way of thinking, a progressive tax system should tax rich liberals as well as rich conservatives.
Republicans removed the SALT cap in 2017 mainly because that penalized non-Republican states. They then exerted considerable effort not to notice the resulting evidence that you could raise taxes for wealthy people by hundreds of billions of dollars and the earth wouldn’t spin off its axis and fly into the sun. (The very wealthiest did not pay additional tax because they tended to pay the Alternative Minimum Tax instead, and the AMT already disallowed any SALT deduction.)
Joe Biden pledged during the 2020 campaign to eliminate Trump’s SALT cap; later dropped the idea; still later raised the deduction cap from $10,000 to a preposterously high $80,000 in his House-passed Build Back Better bill, which died in the Senate; and eventually included no SALT change in his successor bill, the Inflation Reduction Act. In the 2024 election, Kamala Harris took no position on SALT. That about sums up the Democrats’ ambivalence today.
Eliminating the SALT cap became a Republican cause in the 2024 election when, on the eve of an appearance in Long Island, Trump pledged to “get SALT back”—even though he was the guy who took it away. The House version of Trump’s “big, beautiful” budget reconciliation bill raises the SALT threshold to $40,000, at a cost to the Treasury of perhaps $320 billion. The Senate version leaves the cap at $10,000, but as I write, blue-state Senate Republicans are negotiating with Treasury Secretary Scott Bessent for SALT relief. It’s expected that either the threshold will rise or that eligibility for the deduction will be limited to people below a certain income level (or perhaps some combination of both).
If no bargain—or a bargain that’s perceived to be weak—results from these negotiations, then blue-state Republicans risk being voted out of office. Consequently, even those Democrats who favor eliminating the SALT cap are either keeping their mouths shut (the best option) or, in the case of Senator Chuck Schumer of New York, trying to score points by taunting Republicans for not reinstating enough of this regressive deduction. Schumer is of course also Senate minority leader, in which capacity he’s committing political malpractice by bragging that Democrats would give the haute bourgeoisie even deeper tax cuts. The Democrats, Mr. Minority Leader, are the party of the working class. If you can’t understand that, then perhaps it’s time you stepped aside for someone who can.
