Johnson struck a key deal with Republicans in Democratic states to move forward with Trump's mega-bill

Mike Johnson struck a key deal to unlock Donald Trump's mega-bill. After weeks of wrangling over state and local taxes (SALT), the speaker of the House of Representatives reached a tentative understanding with moderate Republicans from Democratic states, who have the legislative leverage to demand changes due to the slim Republican majority in the House. However, the fiscal hawks have yet to give the go-ahead.

Less than 24 hours after assuring that they were missing a few details to iron out Republican rough edges, Johnson is one step closer to reaching his Memorial Day deadline (Monday, May 26) to approve the text.

SALT's importance to Trump's mega-bill

Since internal discussions began to reach consensus on a single piece of legislation, the demand of moderate blue-state Republicans has been to limit state and local tax (SALT) deductions.

Under the Tax Cuts and Jobs Act of 2017 (TCJA), only up to $10,000 can be deducted. In other words, a person previously paid $15,000 in state and local taxes could deduct all that money. With the aforementioned Trump bill, the cap remained at $10,000.

The Republican proposal proposed the SALT cap from $10,000 to $30,000 for couples earning up to $400,000, something that seemed insufficient to this group of Republicans, composed of Mike Lawler (R-NY), Nick LaLota (R-NY), Nicole Malliotakis (R-NY), Young Kim (R-CA) and Andrew Garbarino (R-NY), among others. They all represent districts in high-tax states, such as California or New York, so raising the cap would help their constituents relieve that high tax burden imposed by Democratic governors.

So far, the Republican proposal raises the SALT limit from $10,000 to $30,000 for couples earning up to $400,000.

The agreement between Johnson and the "SALT" Republicans

As reported by The Hill, this new proposal includes raising the deduction limit to $40,000 for households earning $500,000 or less. This limit would increase by 1% per year over ten years. Once met, it would stay where it is and not return to previous levels.

The House Rules Committee will meet early Wednesday morning to consider changes to the bill.

However, it would lack the approval of fiscal hawks, who see this increase as a subsidy for high-tax states. If this deal is confirmed, this group is expected to win further reforms for Medicaid. Specifically, they hope to have work requirements for healthy adults between the ages of 19 and 64 without dependents take effect immediately, not in 2029, as the current Republican bill proposes.

"With my colleagues who want their SALT cap increased … which is subsidizing blue state high-tax jurisdictions, if they want that, then I want the reforms to Medicaid," Congressman Chip Roy (R-TX) recently expressed.

"Why should Americans in fiscally responsible states subsidize irresponsible states like New York?"

The Wall Street Journal editorial board sharply criticized moderate Republicans for their request, though they specifically aimed their cannons at Congressmen Lawler and LaLota of New York.

"Mr. LaLota wants to raise taxes on high earners in places like Florida and Texas, which don’t impose a state income tax, to subsidize high tax-and-spending states like his own," they noted.

"But Mr. LaLota and sidekick Mike Lawler want an even bigger SALT deduction to help the affluent whacked by Andrew Cuomo's tax hikes in 2021 on earners making more than $1,077,550. Mr. Cuomo may have felt free to soak his state’s rich because he expected the tax pain to be mitigated by Democrats in Congress who promised to restore the deduction in full. Why should Americans in fiscally responsible states subsidize irresponsible ones like New York?" the WSJ concluded.