Republicans Consider Dropping Second Phase of Tax Cuts After SALT Backlash

(Bloomberg) -- House Republicans had planned to use a second phase of tax cuts to force Democrats into a difficult vote ahead of mid-term elections. Now, party leaders may drop the effort, fearing it could backfire by antagonizing voters in some hotly contested Congressional districts.

The proposal would make the individual changes in last year’s overhaul permanent -- including the $10,000 annual cap for state and local tax deductions, one of the law’s most disputed provisions. That would put Republican lawmakers in high-tax states like New York, New Jersey and California in the tricky position of either supporting the cap, or voting against tax cuts backed by their party.

Largely because of the SALT cap dilemma, House Republicans are hitting the pause button on “Tax Reform 2.0” legislation, according to three GOP aides who requested anonymity to speak about the matter. The lawmakers want to weigh the political benefits and risks of a vote on the bill in the coming weeks, and assess if they have enough support to pass it.

This shows the problem the Republican Party is encountering this year as it tries to take its signature policy achievement of the past two years to voters -- and Democrats threaten to rob the GOP of its majority in the House.

Shelve It

One option for Republican leaders is to decide to just have the tax-writing Ways and Means Committee mark up the bill and hold a vote for it in the next two weeks before shelving it. Or they could move forward and hold a floor vote by the end of the month. A decision to put the bill on ice before the election would signal Republicans’ need to protect vulnerable members.

A spokesman for House Majority Leader Kevin McCarthy didn’t respond to a request for comment.

Representative Leonard Lance of New Jersey, which has the highest property taxes in the country, said in a statement that he doesn’t support a tax bill that includes the SALT provision and thinks the measure would have a better chance of passing without it.

Lance’s district includes many affluent towns west of New York City, including Bedminster, home to one of President Donald Trump’s golf clubs. It’s considered one of 57 competitive House races, according to the Cook Political report. About a third of those are in districts located in high-tax states -- New York, New Jersey, California, Minnesota and Illinois -- where the SALT issue has been a part of the debate.

On the Record

A vote prior to the election would put those members on the record about controversial legislation where the SALT provision, Trump or both are unpopular.

Republicans Consider Dropping Second Phase of Tax Cuts After SALT Backlash

House Ways and Means Chairman Kevin Brady released a framework for the second round of tax cuts in July, and held listening sessions with members in August. In addition to making the individual changes permanent, the package of bills would make changes to retirement savings accounts and create special tax breaks for startup companies.

Brady, a Texas Republican, probably doesn’t want to strip the SALT provision from the 2.0 bill because it would open the floodgates for members to start requesting tweaks to other tax breaks that the 2017 law scaled back and which are set to expire in 2026, such as decreasing the cap on the home mortgage interest deduction.

Brady told reporters Tuesday that it’s “full steam” ahead to have the tax legislation, which will be marked up by his committee next week, ready for a floor vote this month. He declined to say whether House GOP leaders had committed to a floor vote before the November elections.

SALT Into Wounds

Lance, along with 10 other Republicans from New Jersey, New York and California, voted against the tax bill over concerns that the SALT limit would raise taxes on their constituents. Some high-tax-state Republicans, including Representative Tom MacArthur of New Jersey, voted for the bill even though the SALT provision was unpopular in their districts.

Another concern about holding the vote before the November elections: many property tax bills are issued or due in October, including in some states hit hardest by the SALT cap. Reminding voters that they can’t deduct those levies as their taxes are due -- almost literally, rubbing SALT into their wounds -- would be a “huge gift” to Democrats, said Celinda Lake, a Democratic pollster.

Still, the SALT cap is a non-issue in many solidly Republican districts of low-tax states, where most voters didn’t generate a tax bill high enough to exceed the $10,000 cap.

Messaging Tool

The phase two tax bill has always been viewed as a political messaging tool to help House Republicans since it has a slim chance of moving through the Senate. Last year’s tax law passed without any Democratic votes through a special process called reconciliation.

The tax overhaul is the Republicans’ signature legislative accomplishment since Trump took office. After failing to pass health-care legislation and amid a string of controversies in the White House, GOP lawmakers saw tax cuts as the issue that would resonate most with voters this year.

But the new law never turned into the political gold that Republicans had hoped. Polls consistently show less than half of Americans approve of the tax cut, and many voters see it as disproportionately helping the wealthy and large corporations. Against that backdrop, making the individual cuts permanent, or at least talking about doing so, was seen as helping to make the tax law more attractive to the average voter.

“There will be a high correlation between Republicans who don’t win re-election and those who don’t talk about tax cuts,” said Ryan Ellis, a Republican tax lobbyist.

Democrats see it differently.

Republicans Consider Dropping Second Phase of Tax Cuts After SALT Backlash

Republicans, including Erik Paulsen of Minnesota and Peter Roskam of Illinois, were heavily involved in the passage of the legislation, and another vote on the issue could give their Democratic opponents more fodder for campaign ads, said spokesmen from the respective Democrats’ campaigns.

“People thought the tax bill was bad, but it was over and in the past,” Lake said. “A vote makes the issue current. It makes it part of the ongoing agenda.”

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