What to Know
- Four states in the region, including New York and New Jersey, are suing the federal government over the GOP tax overhaul passed last year
- The lawsuit is in an alleged effort to protect the state and its taxpayers from the drastic cut in state and local tax deduction (SALT)
- The tax law passed by Congressional Republicans and signed into law last year caps a deduction for state and local taxes at $10,000
Four states in the region, including New York and New Jersey, are suing the federal government over the GOP tax overhaul that passed last year.
The lawsuit is in an alleged effort to protect the state and its taxpayers from the drastic cut in State and Local Tax deduction, known as SALT.
Gov. Andrew Cuomo and New York Attorney General Barbara D. Underwood jointly announced that the lawsuit was filed Tuesday.
The tax law passed by Congressional Republicans and signed into law last year by Republican President Donald Trump caps a deduction for state and local taxes at $10,000. This deduction was especially popular in high-tax, Democratic states.
Critics of the cap say it disproportionately harms these high-tax states, where many homeowners will see big increases in their federal tax bill.
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New York and New Jersey is filing suit along with Connecticut and Maryland, against the federal government alleging the GOP tax plan is in violation of 10th and 16th amendments.
The lawsuit claims the 10th amendment bars the federal government from evading a sovereign state’s tax authority, while the 16th amendment guarantees independent authority of states to raise revenue.
The new cap on the SALT deduction also violates the constitution by targeting a handful of states for unfavorable treatment based on their sovereign policy choices, according to the complaint. Additionally, the lawsuit claims that the tax plan interferes with the states’ rights to make their own fiscal decisions and that it will disproportionately harm taxpayers in these states.
“The federal government is hellbent on using New York as a piggy bank to pay for corporate tax cuts and I will not stand for it,” Cuomo said in a statement, adding that the state is taking “legal action against Trump's tax plan that benefits the 1 percent at the expense of middle-class families.”
Connecticut Gov. Dannel Malloy shared similar sentiments, saying: "President Trump's repugnant tax cuts gave massive handouts to the wealthiest one percent and stuck middle class taxpayers with the bill."
New Jersey Gov. Phil Murphy also stressed that the deduction cap would impact the working and middle class.
“What the Trump Administration enacted with the SALT deduction cap was nothing more than a tax hike on our working and middle-class families and seniors,” he said.
An analysis by the New York State Department of Taxation and Finance shows that the cap will increase New Yorkers’ federal taxes by $14.3 billion in 2018, and an additional $121 billion between 2019 and 2025.
Additionally, the cap will cause Connecticut taxpayers to lose an estimated $10.3 billion in SALT deductions in 2018, and will increase Connecticut taxpayers’ federal income tax liability by approximately $2.8 billion in 2018, Connecticut officials say.
The lawsuit claims that the new law contradicts centuries of precedent, which establishes constitutional limits on the federal government’s ability to use its tax power to interfere with the authority of sovereign states.
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State officials say that every federal income tax law protected the sovereign interests of the states by providing a deduction for or all or a substantial portion of state and local taxes. Because of the historical precedent, the lawsuit notes the SALT deduction as unconstitutional.
According to the lawsuit, the new tax provision will hurt taxpayers in New York and other states, by depressing home values while also reducing state tax revenues. This will allegedly force states to choose between higher tax rates or cutting investments in education, public services, and other vital programs.
The lawsuit also alleges federal policymakers of the Trump Administration openly talked about coercing states like New York to change their policy choices, including Treasury Secretary Steve Mnuchin who said the tax change was intended to “send a message” to states to get them to change their taxation and fiscal policies, while an advisor for the Trump campaign, called the new tax policy “Death to Democrats.”
“New York will not be bullied. This cap is unconstitutional – going well beyond settled limits on federal power to impose an income tax, while deliberately targeting New York and similar states in an attempt to coerce us into changing our fiscal policies and the vital programs they support,” said Underwood in a statement.
“We will not allow partisans in Washington to hurt our people or interfere with our policies. We’ve filed suit against this unconstitutional attack on New York and our state’s fundamental rights – because we won’t stand by and let Washington pick the pockets of New Yorkers,” Underwood further added.
The U.S. Department of Treasury, which is among the defendants, is currently reviewing the complaint.