There are a lot of known unknowns about the Republican tax reform framework that was rolled out this week, but one thing that seems clear is they want to eliminate the state and local tax deduction (SALT). And rank-and-file party members are already grumbling about it.
Republicans want to do this to help raise revenue that can be poured into important causes like lowering the top tax rate, eliminating the state tax, and exempting multinational corporations’ foreign earnings from all taxation. They’ve talked themselves into this idea largely on the theory that it’s a tax that hits blue states. Blue states, after all, tend to have higher state and local taxes and also tend to have more expensive houses and thus property tax bills.
But the geography of the US House of Representatives is considerably more complicated than that. Bennie Thompson’s district in Mississippi and Vicente Gonzalez’s district in Texas are both Democratic-held majority-minority districts in Southern states with low tax rates, low property values, and correspondingly low levels of SALT usage. Conversely, over in New Jersey, you have Republicans Leonard Lance and Rodney Frelinghuysen sitting in affluent suburban enclaves where more than 50 percent of tax returns take SALT.
And if you look at the overall 2018 House map, you see that the bulk of the promising targets for Democrats are districts in the Lance/Frelinghuysen mold — districts where the white population contains a large share of college graduates and where Trump’s brand of identity politics doesn’t play well. Hiking taxes on the top 1 percent can play well even in these districts, but that’s not the GOP’s plan. By eliminating SALT, they’re planning a fairly broad tax on everyone who has an expensive house.
SALT is heavily used in GOP-held swing districts
The nine GOP-held seats that the Cook Political Report ranks as toss-ups for 2018 features two members from New York and one from California, the classic SALT country. But the list also includes Rep. Mike Coffman (R-CO), who represents a district where 42 percent of tax units claim SALT, and Rep. Barbara Comstock (R-VA), whose district in the far-flung suburbs of Washington, DC, features a 49 percent usage rate.
You don’t necessarily think of Minnesota as big-time SALT territory, but Republican Rep. Jason Lewis is also on the toss-up list, and 43 percent of the tax units in his district take the SALT deduction.
If you check the Government Finance Officers Association breakdown of SALT usage by congressional district and compare it to the DCCC’s list of red-to-blue target seats, there’s massive overlap. Reps. Mimi Walters, Darrell Issa, Lee Zeldin, Peter King, Dan Donovan, John Faso, Tom MacArthur, Lance, Frelinghuysen, Ryan Costello, Pat Meehan, Brian Fitzpatrick, Lewis, Erik Paulsen, Dave Brat, Comstock, Peter Roskam, Randy Hultgren, and Dave Trott are all defending seats where more than 40 percent of households use the SALT deduction.
Since SALT users are disproportionately affluent relative to non-users, they are likely a majority of the electorate in these places. What’s more, repealing SALT won’t only have an adverse impact on households that take the deduction but could also crimp local government finances in every SALT-heavy district — leading to opposition from mayors, county commissioners, and other local officials, who are often Republicans in these upscale suburbs.
Republicans are already getting cold feet
This, no doubt, is why party leaders already seem to be getting cold feet over the idea.
National Economic Council Director Gary Cohn, a big proponent of scrapping SALT, went on television Thursday morning to admit that he “can’t guarantee” middle-class households won’t see a net tax increase under Trump’s proposal. That wasn’t well-received by his Republican colleagues, since the GOP message is supposed to be the reverse. Inconveniently, however, Cohn was telling the truth, and as Jeanne Sahadi reported for CNN Money, scrapping SALT is a key reason “millions in the middle class” could end up with a higher net tax burden even under a plan that envisions adding $1.5 trillion to the deficit.
Aaron Lorenzo and Rachael Bade report for Politico that vulnerable House Republicans are already mobilizing to try to kill this idea, quoting Rep. Tom MacArthur (R-NJ) as saying, “I’m going to fight this out and hopefully have success in getting this restored.”
The Tax Policy Center has pointed out that SALT is actually a bigger deal for Utah than is generally realized, which is perhaps one reason Senate Finance Committee Chair Orrin Hatch (R-UT) went off script Thursday and immediately voiced skepticism of a plan that he, as the head of the Senate tax writing committee, is nominally in charge of. By Friday morning, even Cohn was conceding that killing the deduction is “not a red line” for the White House.
Their problem, of course, is that they called for ending SALT for a reason — it raises a ton of money, which can then be plowed into key priorities like letting multinational corporations avoid all US taxation of their foreign income, letting people with more than $400,000 in annual salary pay a lower tax rate, and letting people with more than $100,000 a year in partnership income pay a much lower tax rate. The GOP will have to decide if it’s willing to make life harder for vulnerable Republicans to make the math work.