House votes to temporarily repeal Trump SALT deduction cap

The House on Thursday voted to temporarily repeal much of the GOP tax law’s cap on the state and local tax (SALT) deduction, a key priority for many Democrats.

The bill passed on a near party line vote of 218-206. 

Republicans, though, got their own victory in the process when Democrats agreed to adopt their motion to amend, bringing changes to the legislation.

Five Republicans voted for the bill — Reps. Brian Fitzpatrick (Pa.), Peter King (N.Y.), John Katko (N.Y.), Tom Reed (N.Y.), and Chris Smith (N.J.). Fitzpatrick, Katko and Reed voted for the GOP tax law.

Sixteen Democrats voted against the bill, including progressives such as Reps. Alexandria Ocasio-Cortez (N.Y.) and Mark Pocan (Wis.), as well as vulnerable freshmen Democrats in Trump districts such as Reps. Kendra Horn (Okla.) and Ben McAdams (Utah).

The vote underscored how the SALT deduction cap is a tricky issue for Democrats. Lawmakers in high tax states — including many freshman Democrats who flipped Republican-held seats in 2018 — strongly oppose the cap. But analysts across the ideological spectrum, including at progressive think tanks, argue that repealing the SALT deduction cap would largely benefit high earners.

Shortly before the vote on the final passage of the bill, Democrats agreed to accept a Republican motion to recommit (MTR) — a procedural tool used by the minority to make eleventh-hour changes to a bill. It was adopted in an overwhelmingly bipartisan vote of 388-36.

The Republicans’ motion would prevent the repeal of the SALT deduction cap from applying to taxpayers with income more than $100 million, and would also boost the size of an increase in deductions for educators’ expenses and for first responders’ expenses in the bill.

This was a rare instance of an MTR being successful, indicating that Democrats were struggling to get the votes to defeat it.

The change followed Democratic leadership holding an unexpected recess ahead of the vote due to concerns over the MTR, with the fate of the bill remaining uncertain just hours before its expected passage.

A senior Democratic aide said that Republicans’ MTR “was an attempt to play games with teachers and first responders and we were not going to engage with that, so we accepted it.”

“If they really wanted to improve this bill, they had every opportunity to do it when it was in committee or when it went through rules, but obviously no one opposes teachers or first responders,” the aide said.

President Trump’s 2017 tax-cut law, enacted two years ago this weekend, put a $10,000 limit on the SALT deduction. The cap is $10,000 for both single filers and married couples filing jointly.

The cap was included in order to raise revenue to pay for tax cuts elsewhere in the measure, and because Republicans wanted to put a limit on the tax code subsidizing high state taxes.

But Democrats from high-tax states such as New York, New Jersey, California and Illinois have strongly opposed the cap. They argue that the cap punishes their residents and will make it harder for their states to provide public services such as emergency services and education.

The bill restores “the longstanding tax precedent that protects state and local governments’ ability to raise revenue to fund these services,” said Rep. Mike Thompson (D-Calif.), the chairman of the House Ways and Means Committee’s tax-policy subcommittee.

The bill would raise the cap to $20,000 for married couples for 2019, fixing the marriage penalty. It then would largely eliminate the cap for 2020 and 2021. It also would increase the amount of a deduction for educators’ expenses and create a new deduction for first responders’ expenses. As a result of the GOP motion, those educators and first responders would be able to deduct up to $1,000 of expenses, up from $500 in the earlier version of the bill.

To offset the cost of these changes, and to curb the benefits of the bill for high earners, the bill would raise the top individual tax rate from 37 percent to its pre-GOP tax law level of 39.6 percent. That change would take effect for 2020 through 2025, after which time nearly all of the 2017 law’s tax changes for individuals, including the SALT deduction cap, expire.

House Democrats concerned about the SALT deduction cap have been working throughout the year to tackle the issue. Lawmakers formed a working group on the deduction in April, and the House Ways and Means Committee held hearings on the topic in June.

One group of lawmakers that the SALT deduction cap is particularly a priority for is freshman Democrats who flipped Republican seats. Those freshmen campaigned against the SALT deduction cap in 2018 when they defeated Republican incumbents or won open seats previously held by the GOP.

“I want to start by thanking my colleagues across the aisle for passing the Tax Cuts and Jobs Act. My predecessor campaigned on it, and I wouldn’t be here otherwise,” said Rep. Sean Casten (D-Ill.) on the House floor. In 2018, Casten defeated former Rep. Peter Roskam (R-Ill.), who was a key player in writing the GOP tax law.

The vote came one day after nearly every House Democrat voted to impeach Trump. It also came the same day as Democrats voted on Trump’s trade agreement with Canada and Mexico, which like the SALT deduction cap was a priority for a number of freshman Democrats.

Some freshman lawmakers said that there has been work all year on the SALT issue and that a vote on the topic likely would have happened regardless of whether there was an impeachment vote. They see the vote as showing that they are taking action on an issue they said they would tackle while on the campaign trail.

“I think it should be pretty clear by now that the only House of Congress that has been holding the president accountable happens to also be the only House of Congress that’s passing legislation,” freshman Rep. Tom Malinowski (D-N.J.) told The Hill ahead of the House vote. Passing the SALT bill by the end of the year is “one more in a long list of bills that respond to what middle-of-the-road voters in swing districts elected us to do,” he added.

Dave Wasserman, House editor for the Cook Political Report, said that the vote on the SALT deduction cap “shows Democrats are aware of the lessons from 2018, which is that health care and taxes drove support for Democrats, not impeachment.” 

Wasserman said that the House seats that Democrats flipped in areas where the SALT deduction cap is a big issue — such as Orange County, Calif., and northern New Jersey — are not the seats Democrats are the most vulnerable of losing in 2020. But the SALT vote can give Democrats insurance against attacks that they were focused only on impeachment and not on their campaign promises.

While several House Republicans from high-tax states joined most Democrats in supporting the bill, most opposed the measure, arguing that the bill amounts to a tax cut for the rich. They also point out that most people even in high-tax states are getting a tax cut under the 2017 law.

“This bill is a tax cut for the wealthy and a green light for state and local politicians to raise taxes on local families even higher,” said Rep. Kevin Brady (R-Texas), the top Republican on the House Ways and Means Committee. He cited criticisms of the bill from prominent liberal think tanks.

Rep. Lee Zeldin (R-N.Y.), who voted against the GOP tax law because of concerns about the SALT deduction cap, said he couldn’t support the bill in its current form because it would make a longer term increase in the top individual tax rate in exchange for a temporary repeal of the cap.

Thompson defended the bill, saying it “isn’t about cutting taxes for high earners. This bill is about tax fairness, ensuring that taxpayers are not double taxed by being required to pay federal income tax on earnings they pay in state and local taxes.”

The House’s bill isn’t expected to advance in the GOP-controlled Senate. Senate Finance Committee Chairman Chuck Grassley (R-Iowa) indicated earlier this year that he’s not planning to revisit the SALT deduction cap.

In October, Senate Democrats forced a vote on a measure to overturn regulations that blocked blue states’ workarounds to the SALT deduction cap, but the resolution did not pass.

The White House has threatened to veto the bill, with the Office of Management and Budget saying that the legislation would “unfairly force all Federal taxpayers to subsidize a tax break for the wealthy, as well as excessive government spending by fiscally irresponsible States.”

Updated at 5:10 p.m.