Jake Sherman on GOP Budget Fight: SALT Caucus Holds Power Over Speaker Johnson

GOP Budget Reconciliation Bill Dynamics

• 💡 The House Republican Conference is experiencing a "low-grade rebellion" with competing priorities between conservatives and moderates.
• 🎯 Conservatives seek deeper cuts to Medicaid and faster elimination of IRA tax credits, while moderates oppose these changes.

The Centrality of the SALT Deduction

• 🔑 The deductibility of state and local taxes (SALT) is the most significant outstanding issue, particularly for representatives from New York, New Jersey, Connecticut, and California.
• 📌 This issue poses a massive political risk for moderates from these states, potentially jeopardizing the bill's passage.
• 💰 The "SALT Caucus" holds considerable leverage, with the speaker needing their support, rather than the other way around.

Negotiation Strategies and Timelines

• 📈 The current offer from Ways and Means is to raise the SALT deduction to $10,000, with the SALT Caucus pushing for closer to $40,000.
• ⏳ Some analysts suggest delaying a deal until December to maximize leverage, as the alternative could be extending current tax rates without other concessions.
• ⚠️ Pushing the bill to December could lead to the SALT cap expiring entirely, giving the SALT Caucus even more power.

Potential Bill Passage and Senate Influence

• 📊 Speaker Johnson and Senator Thune are expected to ultimately pass a bill, though the process will be contentious.
• ⚙️ The Senate is likely to significantly alter the House's bill, requiring extensive lobbying and potentially a complete rewrite.
• 🗓️ A base case scenario suggests the bill could pass before the August recess, though it might extend into August or even December.

Political Calculus and Election Cycles

• 🚀 Moving the bill closer to an election season could be politically damaging due to cuts to social safety net programs like Medicaid and SNAP.
• 🤝 However, a bipartisan tax bill later in the year, potentially extending 2017 rates, might see Democratic support, as few would vote to increase taxes.