State and Local $10,000 Tax Cap Challenge Rejected by Court
The 2017 federal tax law included a provision that limited to $10,000 the state and local tax payments that families can write off on their federal income taxes if they itemize deductions (the “SALT cap”). Four states, including New York, New Jersey, Connecticut and Maryland sued the federal government last year, arguing that the SALT cap is an unconstitutional assault on their sovereignty.
Recently a Federal District Court judge in Manhattan rejected that argument in a decision that stated that the states had failed to persuade the court that the SALT cap exceeds Congress’s broad tax power. Many Democrats argued that the SALT cap was politically motivated because, in their opinion, it penalizes states with progressive tax policies because it effectively makes state and local taxes more expensive for residents. That could make it harder for states to raise taxes, particularly on wealthy residents, and could increase pressure to cut spending. In their lawsuit, the four states argued that the SALT cap amounted to a coercive effort by the federal government to push certain states to change their tax policies.
A federal judge disagreed and ruled that Congress didn’t unconstitutionally penalize Democratic-leaning states when it imposed a cap on federal deductions for state and local taxes.. New York State Governor Andrew Cuomo said that New York would consider appealing the ruling.