The Republican party is being torn apart by Trump's new tax bill

Telegraph

20-05-2025

Class conflict has erupted in Trump's America – within his own Republican Party. The party controls both houses of Congress, as well as the presidency. But their struggle to agree upon tax legislation shows that Republicans in Washington are challenged by the clashing interests of their traditional wealthy constituents and their new working-class base.
For decades, the Democratic Party, once the party of labour and farmers, has been losing white working-class and white rural voters to the Republicans. In the last decade and a half, working-class whites have been joined by growing numbers of Hispanic and black voters in the exodus to the GOP. Meanwhile, college-educated professionals and high-income voters – once the core of the Republican coalition – have migrated in the opposite direction to the Democratic Party.
The results of this realignment were dramatically evident in the election of 2024. Kamala Harris won voters from households earning more than $100,000 a year – roughly the top third of the population – along with low-income voters making less than $30,000 a year.
At the same time, Trump enjoyed a 20 percentage point improvement in support among voters from households earning between $50,000 and $100,000 a year.
This long-term class realignment of the parties has caused a crisis for the winners, the Republicans, as well as the losers, the Democrats. Affluent, college-educated 'country club' Republicans, no longer dominant, are forced to share the party with working-class, less-educated 'country music' Republicans. The tensions between the country club and country music wings of the party have erupted in debates over the tax bill that Congressional leaders and President Trump seek to pass by Memorial Day, May 26.
State and Local Tax deduction
One source of tension involves the State and Local Tax (Salt) deduction in the federal tax code, which allows taxpayers to deduct state and local taxes like property taxes and sales taxes from their federal income tax liability. The Salt deduction has indirectly subsidised the richest households who reside in places with the highest state and local taxes, like the New York and San Francisco metropolitan areas. The Joint Committee on Taxation in 2014 found that only 1 per cent of households earning less than $50,000 benefited from the Salt deduction, while 88 per cent of the benefit went to households with income above $100,000.
And for decades there was no cap to the deduction that the rich could claim.
This changed in 2017, when the Republican Congress in the first Trump administration capped the Salt deduction at $10,000 per household in the Tax Cuts and Jobs Act (TCJA) of 2017. That Republicans, not Democrats, imposed the cap was shocking proof of how much the party had changed since the Reagan era. Members of the country music wing of the party asked: why should taxpayers in lower-income, less-educated states like Missouri and Montana subsidise millionaires and billionaires in high-tax, big-government coastal states like New York and California?
The fate of the Salt cap in the Republican tax bill has provoked furious controversy. The dwindling number of Republicans from Northeastern and West Coast 'silk stocking' districts have insisted that the cap must be raised to benefit their constituents. One of the most vocal is Representative Nick LaLota. He represents Suffolk County, New York, the fourth wealthiest county in New York State.
Nationwide, however, few benefit from the Salt deduction – only 9.5 per cent of taxpayers claimed it in 2022.
Medicaid
Another flashpoint of conflict between the country club and country music factions of the Republican Party involves Medicaid, the joint federal-state programme of health insurance for low-income Americans. Back in the Reagan era, calls to cut spending on Medicaid and other social insurance and welfare programmes, whose recipients mostly voted for Democrats, were uncontroversial in a Republican party dominated by upscale voters angry at their tax bills. But many of the Republican Party's new working-class and rural voters depend on Medicaid and other programmes like food stamps. This explains why some populist Republicans like Senator Josh Hawley of Missouri oppose cuts in Medicaid.
In addition, some Republicans fear that Democrats will claim that they cut spending on working-class and poor Americans to reduce taxes on the rich. To immunise themselves from Democratic attack ads, Republicans in Congress have included measures that benefit ordinary Americans and retirees in the bill, including an increase in the standard deduction for all taxpayers, an increase in the child tax credit to $2,500 until 2028, when it would revert to $2,000, a new $4,000 deduction for Americans over 65 (instead of the elimination of taxation on Social Security that Trump favoured), and the elimination of taxes on tips, one of Trump's campaign promises, but only until 2028.
Having criticised President Biden's policies of forgiving student loan debts of some college graduates as elitist, Congressional Republicans would allow car owners of all classes to deduct up to $10,000 in interest on car loans.
Slowly but surely, then, the Republican Party is responding to its newly-important working-class voters by letting them share – if only a little – in the tax-cut largesse given to its traditional affluent supporters.
Balance of power
But the existing Republican budgetary approach is threatened by the overhang of the national debt from the Great Recession and massive Covid-era federal spending. In 2024, the federal government spent more on interest payments on the national debt than on defence.
Concerns about the US debt and deficit have led Moody's to downgrade America's credit rating.
Republicans want to increase spending on defence and border security. At the same time, attempts to cut Social Security and Medicare benefits for working-class voters would be politically disastrous. For decades, the party has reconciled high levels of government spending with tax cuts that chiefly benefit the rich by means of deficit spending. But no realistic amount of economic growth or inflation can get the debt and deficit within reasonable bounds without raising federal taxes overall.
Recognising this, President Trump, a billionaire himself, has said that he is open to higher taxes on the richest Americans. According to Pew, nearly half of all Republicans – 43 per cent – favour raising taxes on households making more than $400,000 and large corporations.
But tax increases on the rich are bitterly opposed by many Republican donors, as well as by Republican office-holders who came of age during the Reagan era, when tax cuts were the be-all and end-all of Republican domestic policy.
The final version of the Republican tax bill in Congress, if it survives to passage, will reflect the balance of power within the party between its upscale and downscale constituents. Whatever happens to the bill, the long-term evolution of the Republican party from a country-club establishment party to a country-music populist party is unlikely to be reversed.