Capitol Hill Recap: SALT Showdown

In the immortal words of Kenny Rogers, in poker and in life, it’s all about knowing when to fold ‘em.

Or, in the parlance of Washington, when to “take yes as an answer.” Often, the unspoken second part is, “even though you didn’t get everything you wanted.”

Congress may be setting up a major hand soon, and a chance to see who’s bluffing. According to reports, as the Senate of the major Republican tax package—which could be released as soon as Monday—senators are considering a new $30,000 cap on the deduction for state and local taxes (SALT).

That’s $10,000 lower than the $40,000 cap that House negotiators managed to hammer out. The “SALT Caucus”—comprising members in suburban districts, where local taxes tend to be high and taxpayers are adamantly opposed to the cap—has said it won’t go a dime lower than what they already agreed to.

But senators apparently feel they’re overplaying their hand. There isn’t a SALT Caucus in the Senate, and few Republican senators feel the issue is key to their political survival. With a slim majority in both chambers of Congress, the GOP has a lot of groups it will need to satisfy to get the bill across the finish line. Everyone’s going to have to compromise a bit.

SALT Caucus members feel they already have compromised, however. Their position is boosted, a bit, by the fact that President Trump himself campaigned on abolishing the limit altogether in the 2024 presidential race. But Trump has backed off that stance, and has shown he will use his bully pulpit to corral hold-outs.

It’s a big hand with a lot of money at stake. The SALT deduction is one of the few political issues left that’s more regional than partisan. (When the cap was first passed in 2017, Democrats blasted it as an attack on blue states.)

It’s long been expected to be the trickiest issue in the 2025 tax negotiations, and the one likeliest to derail the process.

Recent Tax Pieces:

The White House Wants the Megabill by July 4. For Real. – Rachael Bade, Politico Magazine:

Let’s be clear: The timeline is extraordinarily fast. Not only does Senate Majority Leader John Thune have to find a way to bridge competing demands inside his conference and weather a grueling amendment “vote-a-rama,” but he also has to work with Speaker Mike Johnson, who is already groaning at every change being entertained for the bill that barely passed his chamber last month.

Traditionally, getting the two chambers aligned on a single piece of complicated legislation means weeks of “conferencing” — that’s what happened in 2017, the last time Republicans pursued a party-line tax bill. This time, the legislation is even more complicated and the margins even thinner.

Bessent Touts Full Expensing as GOP Races to Finish Tax Bill – Katie Lobosco, Tax Notes ($):

The House-passed reconciliation package (H.R. 1) would restore immediate expensing for research and development and revive 100 percent bonus depreciation for items like equipment through 2029. It would also create a new provision to allow full expensing of qualifying structures in the manufacturing, extraction, or agricultural sectors for projects that break ground before the end of 2028 and are placed in service before the end of 2032.

Bessent said the trio of business tax changes will lead to an increase in capital investments and will allow American companies to ramp up hiring.

The Passthrough Deduction Gets a Facelift – Marie Sapirie, Tax Notes ($):

One of the priciest provisions in the One Big Beautiful Bill Act is the extension and expansion of section 199A’s passthrough deduction. Clocking in at nearly $705 billion, it’s the fifth most expensive change in the bill, coming in right after the expansion of the child tax credit. The House’s plan is to expand the deduction to make it even more attractive than its predecessor in the Tax Cuts and Jobs Act. This article will examine the changes the House proposes and speculate about what’s in store in the Senate based on historical evidence.

How ‘Trump Accounts’ With $1,000 Savings for Babies Would Work – Ben Steverman, Bloomberg News ($):

The funds were originally known as “ MAGA Accounts ” but renamed in the legislation narrowly approved by the House of Representatives in May. Under the bill, now under consideration by the Senate, the accounts would be invested in US equities and locked up until the child turns 18. They’re meant to defray the costs of higher education, training programs, small business loans or first-time home purchases.

Senate Republicans Want to Trim Some of Trump’s Populist Tax Cuts – Andrew Duehren, The New York Times:

On the chopping block are some of Mr. Trump’s favorite parts of the bill, like not taxing overtime. Republican lawmakers have long been skeptical of some of the president’s tax ideas, with the view that the populist policies will not spur the economy like traditional supply-side conservatism can.

Tax Credit Sales Would Be Difficult To Insure Under House Bill – Kat Lucero, Law360 Tax Authority ($):

The restrictions would likely strangle the robust market for the clean energy tax credits that quickly emerged after the 2022 Inflation Reduction Act enacted a new tax credit monetization method, called transferability, that allows businesses to sell or transfer their credits for cash at a discount to unrelated third parties. Transferability spurred a market for small to midsize clean energy businesses with limited tax liability to efficiently sell their development's earned credits for cash to buyers, often large corporations from various industries seeking to use the credits to pay down their own taxes.

Tax insurers — which have seen an increased demand in the need for their services to protect tax credit transfer deals from potential financial losses — are also expected to become more selective in underwriting the complicated restrictions if H.R. 1 becomes law, experts told Law360.