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GOP Gives Tax Reform Plan A Bit More SALT

The fight over state and local taxes could lead to an intraparty revolt.
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GOP Gives Tax Reform Plan A Bit More SALT

One issue slowing down the Republican tax reform bill could be closer to a resolution after this weekend. Rep. Kevin Brady, head of the House's Ways and Means Committee, says the new bill would continue to allow some federal deductions for state and local taxes, or SALT.

The fight over SALT was creating something of a revolt among House members at a time when Republicans need to keep ranks as tightly as they can. The issue already led 20 House Republicans to vote no on the budget bill earlier this month.

SALT deductions have been around since 1913 and allow taxpayers to deduct the cost of some of the state and local taxes they pay from their federal tax bills.

"There are certain parts of the country where state income taxes are particularly high, property taxes may be particularly high, sales taxes may be particularly high. Those are the three big buckets of state and local taxes," Politico tax reporter Aaron Lorenzo told Newsy. 

The theory is that if you're an itemizer, you can put these deductions down and you won't have to pay taxes on top of what you've already paid. Almost anyone could file for SALT deductions, but they're most helpful for people who live in places with high state and local taxes.

"Certain states and certain areas of certain states do benefit a lot because they are high-cost-of-living areas. Think New York state — within New York state, Manhattan, the five boroughs," Lorenzo said

Republicans say they want to cut taxes for as many people as possible. The easiest way to pay for that plan is to get rid of the most expensive federal deductions, and SALT is pretty high on that list.

"One of the ways to find that money is to eliminate or scale back different deductions that biz or individuals get," Lorenzo said. 

The Tax Policy Center estimates SALT will have a revenue cost of $96 billion in 2017, and from now until 2026 will account for $1.3 trillion. That's a whole lot of money that could go a long way in making tax reform easier — and less costly — for the federal government.

But representatives of the states that would be most impacted are putting up a fight. Right now, it looks like there's been a compromise that gets rid of most of those deductions, except the one people get on property taxes. It's not clear if that's enough to bring those defectors back. But most Republicans probably aren't worried about blowback from constituents.

"It just so happens that the beneficiaries are largely blue or Democratic leaning states, and so Republicans lawmakers aren't necessarily worried about the impact on the voters in those states," Lorenzo said.