The chair of the House’s tax-writing panel said the $30,000 limit his committee put on the state and local tax deduction is “fair” and lawmakers from high-tax states should accept it.

“It’s not everything that some of the SALT members want, but I have members of our conference that don’t even think that you should be able to deduct $1, let alone $30,000. It’s a fair and balanced approach,” Jason Smith, chair of the House Ways and Means Committee, said Thursday at an Economic Club of Washington, D.C. event.

Demands from New York, New Jersey and California Republicans for a higher limit are one of the few unresolved issues preventing Republicans from advancing President Donald Trump’s economic legislation. Without the SALT lawmakers’ votes, Republicans cannot pass the tax bill.

Smith said he thought his panel had landed on a “good spot.”

Smith spoke a day after his panel advanced the tax-cut portion of Trump’s signature economic legislation, aimed for final passage this summer. The bill would make permanent the individual tax rates reduced in Trump’s 2017 package, and introduce new benefits, including eliminating levies on tips and overtime pay.

Given Republicans’ razor-thin majority in the House, party unity will be vital. But sharp differences over SALT have to be resolved before the economic package is put up for a vote in the House. The current draft raises the cap on that benefit to $30,000, up from a $10,000 limit imposed in 2017, with a phase-out for individuals making more than $200,000 a year and couples making more than $400,000.

Several Republicans from high-tax states have called to increase the cap as high as $62,000 for individuals and $124,000 for couples, a proposition that the Committee for a Responsible Federal Budget estimates would cost $900 billion over the course of a decade.

Smith has criticized those demands, saying the vast majority of taxpayers in high-tax areas would have all their state and local tax payments covered by a $30,000 cap.

Negotiations over SALT are slated to continue Thursday morning in House Speaker Mike Johnson’s Capitol Hill office. Members of the hardline House Freedom Caucus, who are pushing for more spending cuts are also planning to meet with House leadership to seek additional budget reductions.

“We have the smallest majorities in the history of congress,” Smith said. “I could only lose three people. So trying to thread that needle on various provisions including SALT and find that balance is what I’ve been trying to do in this bill.”

The cost of Republican lawmakers’ draft plan for sweeping tax cuts weighed in at $3.8 trillion over the next 10 years in one official estimate. The reality is likely much higher, thanks to the use of budget and political tools designed to minimize the appearance of the fiscal hit, according to independent analysts including former Republican staff members.

Budget experts typically calculate the cost of legislation, or “score,” over a 10-year period. But President Donald Trump’s headline-grabbing pledges to remove taxes on tips and overtime are supposed to expire after just four years in the latest bill. That has the effect of downplaying the potential revenue loss if the measures are extended — which Congress has a tendency to do.

It could also raise concerns among investors and economists about the scale of future borrowing needs for a government whose debt load is on track to surpass 118% of the economy’s size by 2035, potentially undermining confidence in U.S. securities.

Republicans are quick to defend the size of the tax cuts, saying they will grow the economy and, with Trump’s tariff policies, bring in trillions of dollars of added revenue to federal coffers — along with savings found by the Elon Musk-led Department of Government Efficiency.

Speaker Mike Johnson is aiming to secure House approval later this month for a bill that, along with providing Trump’s new benefits, makes permanent the lower income-tax rates set in Trump’s 2017 package. Those rates had been scheduled to expire at the end of this year — something that had limited the official cost of that package in Trump’s first term.

Analysis by the Committee for a Responsible Federal Budget, a centrist fiscal watchdog group, shows that extending the new benefits for a full decade would take the cumulative increase in the deficit to $5.2 trillion. That compares with an official congressional Joint Committee on Taxation tally of $3.8 trillion. After factoring in spending cuts in Medicaid and other items, the CRFB estimated the deficit boost at $3.3 trillion.

While both Republicans and Democrats have previously used budget tricks to portray a better fiscal impact, the scale of the potentially hidden effects of the GOP tax package is striking, said Marc Goldwein, senior policy director at the CRFB. 

“The entire reason they did this temporarily was to reduce this cost,” Goldwein said. “They are basically trying to hide” the additional costs, he said.

Trump and his cabinet members have argued that official scoring fails to capture hundreds of billions of dollars of future revenue from increased tariffs. They also claim that the administration’s deregulatory agenda will lift burdens on businesses, boosting growth.

“It’s going to go gangbusters,” Jason Smith, the GOP chair of the tax-writing House Ways and Means Committee, said of the economy after the tax bill is enacted. Speaking at an Economic Club of Washington, D.C. event Thursday, he cited measures including 100% expensing of certain business investments and incentives for building factories, along with a lower burden on so-called pass-through businesses. There’ll be a “huge impact to the economy,” he said.

GOP’s argument

Smith also claimed that the $1.5 trillion of spending cuts penciled in for the bill, if followed through on, would be the largest reduction of any bill in legislative history. He disputed critics saying tax cuts will balloon the deficit, arguing that spending is the problem.

Federal revenue makes up about the same share of GDP now, at around 17%, as its average over the past 50 years, and most of the current bill simply extends current tax laws, Smith said.

The combination of Trump’s tax cuts, savings and deregulation means a more likely deficit impact of below $2 trillion over the coming decade, Richard Stern, a fiscal expert at the Heritage Foundation, a conservative-leaning think tank.

“The spending cuts are not going to hold back growth — they are not cutting critical services or going to hold back business flows,” Stern said. “These are cutting largely wasteful and fraudulent spending.”

Unsustainable path

Even without adding to U.S. borrowing needs, the existing run rate has the federal debt burden on a trajectory that most observers, including Treasury Secretary Scott Bessent, view as unsustainable. Annual deficits have been clocking near $2 trillion in recent years, or more than 6% of gross domestic product.

The debt-to-GDP ratio is heading for a record high in just four years’ time, according to the nonpartisan Congressional Budget Office.

Trump has dubbed the legislation, which includes a slew of spending reductions yet to be specified in detail, “one big, beautiful bill.” Barclays Plc economists on Wednesday titled a research note on the topic, “One big, beautiful” deficit. “Investors in longer U.S. bonds are unlikely to be happy,” they wrote.

By the calculation of G. William Hoagland at the Bipartisan Policy Center, sunsetting many of Trump’s new benefits after four years, the tax bill saved roughly $500 billion.

The draft bill has a deduction for senior citizens sunsetting in four years, with an expanded child tax credit of $2,500 ending Dec. 31, 2028.

“This is an old trick the tax writers do,” Hoagland, a former congressional Republican staff member, said of phasing out a benefit. “From a fiscal perspective, it underestimates the real cost of these bills.”

Rohit Kumar, national tax office co-leader at PricewaterhouseCoopers LLP and a former top Senate policy aide, said that if provisions prove “super popular, whoever’s running for president in 2028 can run on renewing them.”

The other way lawmakers tried to cut the bill’s cost was “to put the guardrails around who qualifies,” Kumar added. This included adding income limits for a new deduction aimed at retirees, as well as detailing which industries were eligible for the no-tax-on-tips provision.

Ultimately, the four-year timeline for when the tax cuts expire will only stoke uncertainty for both businesses and individuals, said Goldwein at the CRFB.

“How can you plan around a tax code when large parts of it expire in four years,” he said.

A Republican tax plan seeking to cut clean-energy subsidies includes provisions that threaten to cripple the incentives before they even end. 

Little-noticed restrictions in the legislation would disqualify companies from claiming key tax credits if they use components, “subcomponents” or critical minerals imported from nations including China, Russia and North Korea. 

Because much of the U.S. solar and battery industry relies on materials from China, critical manufacturing credits would be unusable well before their official sunset date. The new rules also apply to credits for nuclear, carbon capture, geothermal, heat pumps and biofuels.

The move would constitute “a complete death” for energy projects that rely on complex, global supply chains for solar cells, magnets, batteries and other materials, said Sandhya Ganapathy, chief executive officer for EDP Renewables North America. 

The legislation seeks to fund an extension of President Donald Trump’s tax cuts by rolling back $560 billion in spending on energy tax credits from President Joe Biden’s climate law. It’s slated for a vote before the Memorial Day recess at the end of next week. If passed, the legislation would head to the Senate, where Republicans plan to amend it. 

At a minimum, the foreign-entity rules “could create a cloud of uncertainty around project supply chains until the IRS issues clarifying guidance and could slow new project development,” Evercore Group L.L.C wrote in a research note Tuesday. 

The foreign-entity restrictions along with two other tweaks limiting the energy tax credits drew a rebuke from a group of 13 moderate House Republicans, who said they wanted leaders in the chamber to make changes to the bill. They stopped short, however, of saying they wouldn’t support the measure.

“While many of these provisions reflect a commitment to American energy dominance through an all-of-the-above energy strategy, we must ensure certainty for current and future energy investments to meet the nation’s growing power demand and protect our constituents from higher energy costs,” the group said in a statement, led by Representative Jen Kiggans from Virginia. 

The lawmakers also called for changes in the GOP tax plan to shift when the credits begin to phase down, using a “placed in service” standard instead of the start of construction. Analysts say the latter would limit the number of projects that could qualify and could amount to a retroactive tax for some projects that are already being built. 

The lawmakers also said the bill should be amended to give sponsors of clean-energy projects longer than two years to sell the tax credits.

The Internal Revenue Service, under the Trump administration,  may not be in a hurry to issue rules explaining how to comply with the law, said Jesse Jenkins, an assistant professor at Princeton University who specializes in energy and environmental issues. 

“That alone could be the kiss of death for these projects,” Jenkins said in an interview. “It would be pretty devastating for the manufacturing renaissance we are seeing.”