Freedom Caucus proposes raising corporate taxes in return for relaxing state and local deduction limits
Blue-state Republicans are advocating for an increase in the deduction, potentially creating tension with GOP deficit hawks.
TroibNews 
Members of the House Freedom Caucus have proposed a trade for lawmakers from California, New Jersey, and New York who are looking to expand a key tax deduction during negotiations over a comprehensive GOP policy bill. Their idea involves exchanging lower taxes for constituents in return for higher taxes on corporations.
The proposal suggests that blue-state Republicans would need to agree to limit the state and local tax deduction for corporations as a condition for easing the cap on the deduction for individuals and families.
“I think a lot of us in the Freedom Caucus think that … if they came to that kind of compromise where increasing individual [state and local tax] deductions was paid for by corporate SALT, then we’d probably be all right with that,” said HFC Chair Andy Harris in an interview. “Obviously, in the current fiscal situation, we can’t be giving away money.”
However, the idea has faced resistance from SALT Republicans, who are currently negotiating with the tax-writing House Ways and Means Committee to enhance the deduction for individual taxpayers. A lawmaker involved in the discussions, who requested anonymity, stated they are not interested in “trading one blue-state penalty for another.”
This back-and-forth highlights the difficulties lawmakers encounter in rallying around a sizable border, energy, and tax package, which House Speaker Mike Johnson is pushing aggressively to finalize by April. Both SALT Republicans and the House Freedom Caucus hold significant leverage in the House due to the narrow GOP majority.
A coalition of New Yorkers from crucial swing districts has pledged to oppose any tax bill that does not include an increase in the $10,000 cap on the SALT deduction for individuals and families. However, this move would be costly and is generally unpopular with most Republicans.
Many GOP lawmakers assert that any increase in the SALT cap would need to be offset by spending cuts or tax increases in other areas.
“Look, it’s going to take a lot of debate on that. It’s tricky. That’s why it’s going to be hard to meet that deadline for the tax part,” said HFC member Ralph Norman when discussing the SALT negotiations in an interview.
Senate Finance Committee Chair Mike Crapo, who leads tax negotiations in the Senate, acknowledged that discussions are ongoing about potential SALT trade-offs.
“There are people on both sides of those issues,” Crapo told reporters. “That’s one of those issue sets that’s a very hard one to resolve.”
The HFC's proposal would mean a tax hike for many companies based in New York, New Jersey, and California, such as Alphabet, American Express, and Chevron, even as the broader Republican Conference has indicated it is opposed to raising the 21 percent corporate tax rate.
Currently, companies can deduct an unlimited amount of state and local taxes from their federal taxes. Ending the ability to deduct state corporate income taxes alone could raise $192 billion over ten years, according to a joint analysis by the Bipartisan Policy Center and the Tax Foundation.
Limiting the ability to deduct state property taxes might generate hundreds of billions more, according to Garrett Watson of the Tax Foundation.
“Would Republican members be comfortable raising taxes on corporations and businesses in this way because they are not in favor of raising the [corporate] rate?” Watson questioned.
Eliminating the SALT cap for individuals would be extremely costly—estimated at $1.2 trillion over ten years by the Committee for a Responsible Federal Budget.
Doubling the SALT deduction cap for married couples filing jointly—another idea being weighed—would cost approximately $225 billion over ten years, assuming Republicans also extend various tax provisions set to expire at year’s end, according to Howard Gleckman from the Tax Policy Center.
It remains uncertain whether SALT Republicans can reach consensus on how much to increase the cap, despite President-elect Donald Trump reaffirming his support for raising it in a meeting with them at Mar-a-Lago last weekend. Trump urged them to negotiate a “fair number.”
“I haven’t been in obviously every one of the meetings, but it’s changed pretty much every meeting,” remarked Republican Policy Committee Chair Kevin Hern regarding SALT requests from New York lawmakers.
Republican Conference Vice Chair Blake Moore, who met with New York Republicans about SALT last week, commented that, “in a perfect world,” SALT Republicans would currently have a unified stance.
Nonetheless, there are “realities” in each state that negotiators must navigate, Moore added.
Republicans need to find consensus on this issue soon, as Speaker Johnson has outlined a plan to finalize a budget resolution by February 10, a crucial step for initiating budget reconciliation, which will allow them to bypass Democratic opposition in the Senate for key Republican initiatives.
The budget resolution will delineate spending caps for committees. House GOP leaders privately maintain that without an agreement on SALT, they cannot accurately determine the size of the package or necessary spending cuts.
House Ways and Means Chair Jason Smith, who is leading the GOP's tax bill efforts, expressed confidence that negotiators will find common ground.
“We will, as a Republican conference, all get on the same page,” Smith affirmed in an interview.
Meredith Lee Hill contributed to this report.
Camille Lefevre for TROIB News
The proposal suggests that blue-state Republicans would need to agree to limit the state and local tax deduction for corporations as a condition for easing the cap on the deduction for individuals and families.
“I think a lot of us in the Freedom Caucus think that … if they came to that kind of compromise where increasing individual [state and local tax] deductions was paid for by corporate SALT, then we’d probably be all right with that,” said HFC Chair Andy Harris in an interview. “Obviously, in the current fiscal situation, we can’t be giving away money.”
However, the idea has faced resistance from SALT Republicans, who are currently negotiating with the tax-writing House Ways and Means Committee to enhance the deduction for individual taxpayers. A lawmaker involved in the discussions, who requested anonymity, stated they are not interested in “trading one blue-state penalty for another.”
This back-and-forth highlights the difficulties lawmakers encounter in rallying around a sizable border, energy, and tax package, which House Speaker Mike Johnson is pushing aggressively to finalize by April. Both SALT Republicans and the House Freedom Caucus hold significant leverage in the House due to the narrow GOP majority.
A coalition of New Yorkers from crucial swing districts has pledged to oppose any tax bill that does not include an increase in the $10,000 cap on the SALT deduction for individuals and families. However, this move would be costly and is generally unpopular with most Republicans.
Many GOP lawmakers assert that any increase in the SALT cap would need to be offset by spending cuts or tax increases in other areas.
“Look, it’s going to take a lot of debate on that. It’s tricky. That’s why it’s going to be hard to meet that deadline for the tax part,” said HFC member Ralph Norman when discussing the SALT negotiations in an interview.
Senate Finance Committee Chair Mike Crapo, who leads tax negotiations in the Senate, acknowledged that discussions are ongoing about potential SALT trade-offs.
“There are people on both sides of those issues,” Crapo told reporters. “That’s one of those issue sets that’s a very hard one to resolve.”
The HFC's proposal would mean a tax hike for many companies based in New York, New Jersey, and California, such as Alphabet, American Express, and Chevron, even as the broader Republican Conference has indicated it is opposed to raising the 21 percent corporate tax rate.
Currently, companies can deduct an unlimited amount of state and local taxes from their federal taxes. Ending the ability to deduct state corporate income taxes alone could raise $192 billion over ten years, according to a joint analysis by the Bipartisan Policy Center and the Tax Foundation.
Limiting the ability to deduct state property taxes might generate hundreds of billions more, according to Garrett Watson of the Tax Foundation.
“Would Republican members be comfortable raising taxes on corporations and businesses in this way because they are not in favor of raising the [corporate] rate?” Watson questioned.
Eliminating the SALT cap for individuals would be extremely costly—estimated at $1.2 trillion over ten years by the Committee for a Responsible Federal Budget.
Doubling the SALT deduction cap for married couples filing jointly—another idea being weighed—would cost approximately $225 billion over ten years, assuming Republicans also extend various tax provisions set to expire at year’s end, according to Howard Gleckman from the Tax Policy Center.
It remains uncertain whether SALT Republicans can reach consensus on how much to increase the cap, despite President-elect Donald Trump reaffirming his support for raising it in a meeting with them at Mar-a-Lago last weekend. Trump urged them to negotiate a “fair number.”
“I haven’t been in obviously every one of the meetings, but it’s changed pretty much every meeting,” remarked Republican Policy Committee Chair Kevin Hern regarding SALT requests from New York lawmakers.
Republican Conference Vice Chair Blake Moore, who met with New York Republicans about SALT last week, commented that, “in a perfect world,” SALT Republicans would currently have a unified stance.
Nonetheless, there are “realities” in each state that negotiators must navigate, Moore added.
Republicans need to find consensus on this issue soon, as Speaker Johnson has outlined a plan to finalize a budget resolution by February 10, a crucial step for initiating budget reconciliation, which will allow them to bypass Democratic opposition in the Senate for key Republican initiatives.
The budget resolution will delineate spending caps for committees. House GOP leaders privately maintain that without an agreement on SALT, they cannot accurately determine the size of the package or necessary spending cuts.
House Ways and Means Chair Jason Smith, who is leading the GOP's tax bill efforts, expressed confidence that negotiators will find common ground.
“We will, as a Republican conference, all get on the same page,” Smith affirmed in an interview.
Meredith Lee Hill contributed to this report.
Camille Lefevre for TROIB News
