In the latest sign that the Trump administration is standing by one of the most controversial elements of its tax-reform program over the vociferous objections of blue-state Republicans in the House and Senate, Gary Cohn reportedly played down the impact of eliminating the deduction for state and local taxes - known as the SALT deduction - during a meeting with a partisan group of lawmakers, according to Politico Playbook.
Cohn met with the Problem Solvers caucus on the Hill this morning to discuss the administration’s tax reform agenda. Sources told Politico that Cohn said the proposed elimination of the SALT deduction would remain in the final bill, and furthermore, that it would probably be less controversial than the administration’s plan to reduce the “pass through” rate - the rate at which many small businesses are taxed - to 25%.
GARY COHN told lawmakers today that they are overreacting to the state and local tax issue, and floated a gas tax to pay for infrastructure pic.twitter.com/UIKAYrj1PW— Jake Sherman (@JakeSherman) October 25, 2017
Cohn's remarks are the latest sign that the tax-reform bill's architects have yet to reach an agreement on several key issues. As Bloomberg reported last night, Rep. Peter Roskam, a key House lawmaker on taxes, said it’s important to him that Congress reach a compromise on state and local tax deductions, rather than repealing it altogether. And a large group of blue-state Republicans appear to be backing him up. Since blue states tend to have higher local taxes, some Republicans claim the bill unfairly targets Americans based on where they live.
Roskam, chairman of the Ways and Means tax policy subcommittee, said Republicans are closer to a decision on the so-called SALT deduction, but it’s still unclear to him how the full committee will treat the tax break.
The uncertainty over SALT, which is one of the few revenue boosters in the nine-page Trump tax plan outline, is believed to be one of the most divisive elements of the Trump plan, though the administration has struggled to find a suitable alternative that would similarly reduce the impact on the deficit. Treasury Secretary Steven Mnuchin has also criticized the SALT deduction as an example of the federal government unfairly subsidizing the states.
Right now, lawmakers are trying to find a way to keep tax reform from adding $1.5 trillion to the budget deficit over the coming ten years.
Cohn’s remarks highlighted the considerable uncertainty surrounding what the final tax-reform bill will look like. And to be sure, the SALT deduction is hardly the only proposal for which Republicans involved with the process of writing the bill have given conflicting statements.
House Ways and Means Chairman Kevin Brady insisted Wednesday that changes to retirement savings are coming, despite President Donald Trump’s repeated promises this week that no changes would be made to the 401(k) tax-deferral process. A proposal circulating among House Republicans would impose new limits on the upfront tax break for 401(k) savings as a way of generating additional federal revenue to offset money lost by the rate cuts and other proposed changes.
There will be NO change to your 401(k). This has always been a great and popular middle class tax break that works, and it stays!— Donald J. Trump (@realDonaldTrump) October 23, 2017
These contradictions have helped validate suspicions that the likelihood of tax reform passing by year end is far from a certainty .