Back in July, House Republicans gleefully put the wheels in motion on a framework for a second round of tax cuts, which would permanently extend individual tax provisions contained in the Tax Cuts and Jobs Act that are set to expire in 2025. This proposed tax package, what some are calling “tax cuts 2.0” or “tax reform 2.0,” would include reduced rates for individual taxpayers, an expanded standard deduction, a larger child tax credit, and a new deduction for pass-through business income, among other things.
House Republicans were planning to vote on the proposed tax legislation later this month. But according to a Bloomberg report, those plans have come to a screeching halt. Here’s why:
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.
The Wall Street Journal noted on Sept. 3 that “a sizable number of competitive [House] districts—almost all currently Republican—are vulnerable to new tariffs, a new cap on deductions for state and local income taxes, or a jobs picture worse than the national average.”
There are 57 competitive House races in the midterm elections, according to the Cook Political Report, and about a third of those are in districts located in high-tax states where the SALT cap has been a hot-button issue, Bloomberg noted.
So in other words, some vulnerable House Republicans are fearing for their political lives. Take Leonard Lance (R-NJ), whose district includes many affluent towns west of New York City, including Bedminster, home to one of President Donald Trump’s golf clubs, for example. According to Bloomberg, he said that he doesn’t support tax legislation that includes the SALT cap and believes the bill would have a better chance of passing without it.
And then there’s a lawsuit the attorneys general in New York, Connecticut, Maryland, and New Jersey filed in July against the Trump administration, which is asking the U.S. District Court for the Southern District of New York to invalidate the $10,000 cap.
According to The Hill:
The states argued that prior to the 2017 federal tax overhaul, Congress consistently allowed federal taxpayers who itemized their tax deductions to deduct, subject to certain incidental limitations, all of their state and local real and personal property taxes, and either state and local income taxes or sales taxes from their federal income tax returns, which often adds up to more than the $10,000 cap.
“The new cap effectively eviscerates the SALT deduction, overturning more than 150 years of precedent by drastically curtailing the deduction’s scope,” the states said in the complaint.
The states argue in the complaint the new cap is unconstitutional because it goes beyond settled limits on the federal government’s power to impose an income tax and deliberately harms certain states and their residents.
So, what options do House Republicans have? According to Bloomberg, they have two:
- Have the House Ways and Means Committee mark up the bill and hold a vote for it in the next two weeks before shelving it.
- 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.
If I were a betting man, I think they’ll go with option No. 2. House Ways and Means Committee Chairman Kevin Brady really wants to try and push this through the House, Dems be damned. And as Bloomberg noted, Brady “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.”
But even if the House passes the legislation, the bill would likely stall in the Senate, where some Democratic support would be needed for it to pass in that chamber.
So, don’t expect “tax cuts 2.0” to be happening anytime soon, if at all.
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