Will 'new flavor' tax bill with extra SALT get the deal done?

by Steven T. Dennis, Ari Natter, Erik Wasson and Emily Birnbaum

House Republican leaders released a new version of President Donald Trump’s massive tax and spending bill with a higher limit on the deduction for state and local taxes and other changes in a bid to win over warring GOP factions to support the legislation.

The updated legislation released Wednesday night also would speed up cuts to Medicaid and elimination of Biden-era clean energy tax breaks, a demand of hardline conservatives. 

A White House official said Wednesday night that Trump was very supportive of the revised bill. Yet it wasn’t immediately clear whether the revisions  would attract enough support to pass the House, where Republicans hold a slender majority and can only afford to lose a few votes.

House Speaker Mike Johnson is pressing to rush the package through the chamber before lawmakers leave for the Memorial Day recess. The vote on passage could take place as soon as Thursday.

Lawmakers advanced the measure in a key procedural vote early Thursday morning, around 2:40 a.m. Washington time. All but one Republican backed a rule to set out terms for formally debating the measure, while every Democrat who voted opposed it.

The new version of the Trump tax bill would raise the state and local tax deduction cap to $40,000, in an effort win over a group of holdouts from New York, New Jersey and California. The higher limit would begin this year. The amount allowed would gradually phase down for taxpayers with annual incomes greater than $500,000.

The cap and income phase-out would increase 1% annually after this year. 

The bill also now separately creates a new limit on the value of itemized deductions for those in the 37% tax bracket that partly erodes the value of the new SALT cap.

The holdout Republicans had been pressing to raise the limit on the SALT deduction since their party imposed a $10,000 limit on the deduction in Trump’s first-term tax overhaul. Before that, the deduction had been unlimited.

The revised bill also would accelerate new Medicaid work requirements to December 2026 from 2029 in a gesture to satisfy ultraconservatives.

The December 2026 deadline would fall just one month after midterm elections, with Democrats eager to criticize Republicans for restricting health benefits for low-income households.

In an appeal to hardliners, the revised bill prohibits Medicaid from funding gender transition therapies or procedures for minors or adults. The original version applied only to minors. 

The new version renames a new tax-advantaged savings vehicle for children “Trump accounts.” The accounts, which in the initial legislation had been dubbed “MAGA accounts,” would be seeded with $1,000 for each American baby born in the next few years.

The bill also includes $12 billion to reimburse states retroactively for expenses they incurred for border security, a big win for Texas Republicans including Senator John Cornyn, who has been lobbying House members to add the provision.

The latest version also eliminates one provision that would have cut federal pensions by basing benefits on the highest five years of salary rather than the highest three, in a move cheered by Republican Representative Mike Turner of Ohio, who called the provision “unfair.”

Copyright Bloomberg News