NEW YORK – On Tuesday, Four U.S. states sued the federal government for being void of the new $10,000 cap on federal deductions for state and local taxes included in President Donald Trump’s 2017 tax overhaul. Critics have said the cap would disproportionately harm “blue” states that tilt Democratic.
According to the Tax Foundation, the four states, and California, which all favored Democrat Hillary Clinton in the 2016 presidential election, may be particularly hard hit, based on SALT deductions as a percentage of adjusted gross income. The lawsuit by New York, Connecticut, Maryland and New Jersey came seven months after Trump signed the $1.5 trillion overhaul passed by the Republican-led Congress, which cut taxes for wealthy Americans and slashed the corporate tax rate.
Taxpayers have long typically enjoyed unlimited federal deductions for state and local taxes, known as SALT deductions. Tuesday’s lawsuit adds to the many legal battles between such states, including several with high taxes, and the Trump administration, which was accused of unconstitutionally intruding on state sovereignty by imposing the cap.
A spokeswoman for the Department of the Treasury said that agency was reviewing the complaint. The department, Treasury Secretary Steven Mnuchin and the Internal Revenue Service are among the defendants. “The federal government is hell-bent on using New York as a piggy bank to pay for corporate tax cuts and I will not stand for it,” said Andrew Cuomo, New York’s Democratic governor.
The four states said, “the cap will depress home prices, spending, job creation and economic growth, and impede their ability to pay for essential services such as schools, hospitals, police, and road and bridge construction and maintenance. Under the cap, individuals and married taxpayers filing jointly who itemize deductions may deduct only up to $10,000 annually for state and local income, property and sales taxes”.