How SALT Melted the Republican IRA Defense

As the process to extend the 2017 Trump tax cuts approaches its denouement in the House of Representatives, the relative power of the various Republican factions who could hold up or alter the bill may be finally making itself clear.

And it’s the clean energy tax credit supporters who appear to be the weakest.

Three groups of House Republicans have been the most persistently critical of the emerging framework for the tax and spending bill. There are the members of the House Freedom Caucus, led by Texas Republican Chip Roy, who are fuming about the bill’s impact on the deficit. There are the SALT Republicans, a group whittled down to just five members from New York, New Jersey, and California — blue states all, with all the members from competitive districts — who want to raise the deductibility ceiling for state and local taxes, a.k.a SALT taxes, after it was slashed in 2017’s Tax Cuts and Jobs Act.

And then there are the tax credit defenders, a group of moderate Republicans from largely blue or purple states or districts who want to see at least parts of the Inflation Reduction Act preserved and protected. If that description sounds a lot like the description of the SALT caucus, well, you’re onto something: Every member of the SALT caucus has at one time or another criticized a slash-and-burn approach to dealing with the IRA’s clean energy tax credits.

Both the SALT caucus and the Freedom Caucus have been seen as credible threats to the bill, whose members must be appeased. The SALT caucus stands in a Manchin-esque position, where the five of them together could tank the bill on their own — and where some distance from the Republican party could help them in their districts. For the Freedom Caucus conservatives, the bill presents a pretty clear red line: A handful of them simply do not vote to raise the debt ceiling, which the House language does, and so would have to be appeased with substantial spending cuts.

The SALT caucus appears to have won meaningful concessions, reportedly bringing the deductibility level up to $40,000 for incomes under $500,000. It’s these concessions that seemed to be holding up the bill Wednesday afternoon, as Freedom Caucus members balked over the relative lack of attention their concerns had received. Earlier this week, President Trump was pressuring the SALT caucus to let the bill advance; now he’s putting the screws to the Freedom Caucus. And caught in the middle might be the Inflation Reduction Act.

The solution to bringing the budget harliners on board may be to further fetter and restrict the clean energy tax credits, with Republican leadership reportedly discussing bringing tax credits for projects placed in service after 2028 straight to zero rather than phasing them out gradually.

In the run up to the bill’s drafting, there was much speculation that the core clean energy tax credits of the Inflation Reduction Act could be preserved in large part thanks to the fact that they had sparked investment in Republican congressional districts. In August of last year, well before the presidential election, 18 House Republicans representing a mix of blue states and districts with substantial IRA-linked investments — including Conservative Climate Caucus Vice Chair Buddy Carter’s Savannah, Georgia-based district, with its Hyundai vehicle and battery plant — wrote a letter to Speaker Mike Johnson warning that “prematurely repealing energy tax credits … would undermine private investments and stop development that is already ongoing.” A full repeal, they said, “would create a worst-case scenario where we would have spent billions of taxpayer dollars and received next to nothing in return.”

In March, after some election-related turnover, a similar group wrote to House Ways and Means Committee Chair Jason Smith that “any proposed changes to the tax code be conducted in a targeted and pragmatic fashion that promotes conference priorities without undoing current and future private sector investments.”

But at no point have these members ever seriously threatened to vote against the bill — not even after Smith’s Ways and Means Committee proposed text that would essentially disembowel the climate law. Even going into Wednesday’s Rules Committee meeting, at least one tax credit supporter, Don Bacon of Nebraska, was leaning towards supporting the bill — hardly the kind of defiance that leads to concessions.

Not that the House IRA’s defenders have been entirely silent. After the Ways and Means Committee released its bill text, a smaller group of House Republicans (14 this time) wrote yet another letter, asking their colleagues to “consider” the effects of accelerating phase-outs, scrapping the ability to sell tax credits on the open market, and pushing out projects’ eligibility for tax credits later in their life cycle. This group, led by Virginia Republican Jen Kiggans, no longer included Buddy Carter, who in the interim had launched a campaign for Jon Ossoff’s Senate seat. It also did not include Mariannette Miller-Meeks, the Iowa Republican who chairs the Conservative Climate Caucus and who had signed the previous letters. Miller-Meeks has always shown special interest in biofuels, which arguably fared the best in the Ways and Means language — the phase-out of the IRA’s biofuel tax credit was extended from 2027 to 2031, winning plaudits from industry.

But these objections were exceedingly polite, especially compared to the Freedom Caucus’ characteristic bluster.

While the legislation is still in flux, it may be that the clean energy caucus, such as it was, contained within it the seeds of its own failure.

Of the five SALT caucus members, four signed on to Kiggans’ letter criticizing the original language altering the tax credits. Now, they appear to have won, or at least reached a deal with the House Republican leadership. And that means more fiscal space in the bill — which may be made up for with even stingier tax credits for clean energy. When the time came for choosing, SALT had to be on the menu.