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President Donald Trump’s tariffs promise to intensify the already-high pressure on Republican lawmakers in blue states to get a state and local tax relief deal added to their party’s upcoming tax plan.
Blue-state members of Congress in both parties have tried unsuccessfully for years to either increase or remove the $10,000 cap on state and local tax deductions that was part of Trump’s 2017 tax cuts. But the prospect of tariff-related price increases adds a new burden to this year’s pitched fight over the so-called SALT cap.
House Republicans from the Northeast and California, in particular — who have largely cheered the president’s agenda so far — may now have to decide whether their political futures in battleground seats require them to make their tax votes contingent on a SALT deal. Using their leverage could pay off, given the GOP’s small margin of error in the House.
Their constituents — in high-cost, high-tax districts from New York, New Jersey, and California — may also end up feeling so pinched by Trump’s tariffs that they leave those Republican lawmakers little choice. Blue border states, experts say, face unique challenges during trade wars because of their proximity to US trading partners.
“Border states are, in fact, burdened a lot because they do see a lot of trade with their neighbors,” Robert McClelland of the Urban-Brookings Tax Policy Center said in an interview.
Garrett Watson, policy director at the nonpartisan Tax Foundation, characterized the idea of price increases from tariffs on top of the SALT cap as a “double whammy.”
In import and export hubs, some coastal shipping and warehousing companies are already experiencing a tariff-related decline in bookings. The industry accounted for approximately 17% of New Jersey’s employment in 2020.
New York agricultural areas are beginning to feel the effects of rising grain prices from Canada. And California winemakers anticipate increased production costs because they import glass bottles, corks, and barrels from China and Europe.
“They cannot afford additional cost increases,” Rep. Young Kim, R-Calif., one of the leading GOP advocates for a deal on the SALT cap, told Semafor. “I am encouraged by discussions between the administration and our partners to level the playing field.”
She added: “Hard-working families I represent face skyrocketing living costs and state and local taxes. The SALT cap hurts their bottom line even more. Federal policies should ease — not add to — the pain caused by Sacramento.”
If Congress’ tax debate drags out past Republican leaders’ Memorial Day deadline, it risks bumping up against the expiration of the 90-day pause Trump put on many of his tariffs. The more negative economic effects are felt from Trump’s tariffs, tax analysts say, the more uncertain his grip on congressional Republicans will become.
“If the tariffs really do have significant negative effect on the economy — prices go up, employment goes down, interest rates go up — Trump could lose some of that influence by the time Congress gets around to voting for an extension for the Tax Cuts and Jobs Act,” Howard Gleckman, a senior fellow at the Tax Policy Center, said in an interview.
Despite the perils ahead, Republicans active on SALT said they haven’t broached tariffs as a negotiating tool — yet.
“Tariffs haven’t been discussed as part of our negotiating strategy,” Rep. Andrew Garbarino, R-N.Y., another key player in talks to raise the cap, told Semafor.
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SALT isn’t the only stressor that House Republicans in competitive blue-state districts face in this year’s tax negotiations.
Those same GOP lawmakers are also on the front lines in the fight against cutting Medicaid. A group of them penned a letter to House Speaker Mike Johnson recently, threatening to vote against any tax bill that cuts Medicaid in vulnerable communities.
But the strain of the 2017 SALT cap is especially acute in high-cost areas, where public-sector employees, who are required to live in or near towns where they work, are already feeling the effects of Trump’s tariffs.
“Tariffs impact everyone, but the SALT cap disproportionately punishes middle-class public employees like firefighters, cops, and teachers who already pay their fair share,” Ed Kelly, president of the International Association of Fire Fighters, told Semafor. “That’s not right.”
Lawmakers in the SALT talks are considering a potential deal to raise the deduction cap to between $30,000 and $50,000, according to multiple sources familiar with the negotiations. An abrupt GOP rebuttal to a recent report that estimated the number at around $25,000 suggests Republicans are homing in on a number at the higher end of that scale.
Things are still in flux, and the uncertainty around tariffs continues to affect talks.
In addition to pending negotiations between the Trump administration and US trading partners, which could ease or exacerbate the burden of tariffs, court challenges to the president’s use of emergency tariff powers are still in progress.
There’s also a clear tension on the Hill over how to fit Trump’s other priorities into a tax bill — chiefly his calls for no tax on tips, Social Security, and overtime pay — compounding the uncertainty about where lawmakers will land on SALT.
Then, of course, there’s the nightmare outcome for Republicans: No deal by the time the 2017 tax cuts expire at the end of the year. Party leaders have ruled that out as unimaginable. It would, however, mean the demise of the deduction cap.
“On the one hand, some folks will get their SALT back; on the other hand, they’ll see a tax hike from all these other expirations,” Garrett Watson, policy director of the Tax Foundation, said in an interview.
Kadia’s view
Blue-state Republican centrists are in their best political position since the party took the majority in 2022. Sure, they have been known to fold. But hear me out: These GOP lawmakers have significantly more leverage than they did during their last few attempts to raise the cap.
As battleground-seat occupants, they have a powerful case to make that leadership should award them bragging rights back home ahead of the midterms.
Add to that, their most fervent opponents — budget hawks in safe seats— have already won plenty of concessions during budget negotiations by getting commitments on spending cuts.
Pile tariff pain on top of that reality, and the pro-SALT Republicans’ time may have come.
Room for Disagreement
Former Rep. John Faso of New York said he sees the SALT debate hinging less on the economic effect of Trump’s tariffs and more on the challenge of fitting all the president’s demands into one bill.
“It’s hard to fit all of those things into the tax cut basket and still accommodate the desire that a lot of folks have from our state to raise the SALT cap,” he said.
Notable
- Bloomberg detailed who benefits from raising the SALT cap.
- California Gov. Gavin Newsom is challenging the administration’s tariffs in court, as the Associated Press reported.