Court upholds Trump law limiting state tax deductions

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Court upholds Trump law limiting state tax deductions

A federal appeals court Tuesday unanimously rejected a suit filed by ex-Gov. Andrew Cuomo to overturn a tax overhaul law approved by former President Donald Trump in 2017 that limited federal deductions on state and local taxes.

The $1.5 trillion law imposed a $10,000 cap on itemized SALT deductions that taxpayers could write-off on their federal returns, which provided Trump and the then-Republican-led Congress more revenues to pay for other federal tax cuts.

The SALT cap largely affects the wealthiest taxpayers in high tax Democratic states in the Northeast — New York and New Jersey, and Connecticut, as well as California.

The Trump tax reform cut taxes for wealthy Americans and dramatically slashed the corporate tax rate from 35 percent to 21 percent. But many low and moderate income taxpayers also benefited from the Trump-era federal tax cuts.

One study even concluded that New Yorkers overall benefitted from the Trump tax changes, undercutting Cuomo’s claims that it damaged residents.

New Jersey, Connecticut and Maryland joined New York in what many experts believed was a long-shot bid to overturn the federal law that limited the SALT deduction. Cuomo and other plaintiffs claimed the law was unconstitutional and trampled on state’s rights and sovereignty.

In a 3-0 decision, the judges for the US Court of Appeals for the 2nd Circuit in Manhattan disagreed, delivering a stinging defeat to New York and other plaintiff states.

“What really propels the plaintiffs’ view that Congress is constitutionally foreclosed from eliminating or curtailing the SALT deduction is their position that, until 2017, Congress had never done so. We disagree that the Constitution imposes such a constraint on Congress,” said Circuit Judge Raymond Lohier.

“They point us to nothing that compels the federal Government to protect taxpayers from the true costs of paying their state and local taxes. We reject the Plaintiff States’ contention that the Constitution mandates the SALT deduction.”

Andrew Cuomo
A federal appeals court rejected a suit filed by ex-Gov. Andrew Cuomo to overturn a Trump-era tax overhaul law.
AP Photo/Mary Altaffer, Pool

New York claimed in court papers that the SALT cap could cause home equity values in the state to plummet by over $60 billion, in-state spending to decrease by $1.26 to $3.15
billion, and the economy to lose between 12,500 and 31,300 jobs.

Cuomo also estimated New York taxpayers would pay $121 billion of extra federal taxes from 2018 to 2025 because of the cap on SALT deductions.

But the judges, upholding a district court decision in 2019, dismissed the alarmism.

“Without baseline figures to put these numbers in context, however, we are not convinced by the argument. We do not mean to minimize the Plaintiff States’ losses or the impact of the cap on their respective economies. But we find it implausible that the amounts in question give rise to a constitutional violation,” Lohier said in the 36-page ruling.

“The SALT deduction cap has no effect on state sovereignty. The outsized effect of the SALT deduction cap on the Plaintiff States arises only because the Plaintiff States previously benefited most from the SALT deduction, not because the cap applies to some States but not others.”

New York Attorney General Letitia James
New York Attorney General Letitia James filed the states’ appeal.
AP Photo/Richard Drew, File

The judges also pooh-poohed the argument, often cited by Cuomo publicly, that Trump and Republicans in Congress unfairly punished Democratic states.

“The Plaintiff States complain that Congress unfairly targeted them. Given our discussion of the statutory history, it is obviously true that members of Congress were aware that the SALT deduction cap would adversely affect some states more than others. But the SALT deduction cap is not unlike the countless federal laws whose benefits and burdens are unevenly distributed across the country and among the several States,” the judges said.

“We agree with the District Court that the SALT deduction cap is not coercive in violation of the Tenth Amendment or the principle of equal sovereignty.

State Attorney General Letitia James, which filed the states’ appeal, declined comment.

New York’s Congressional delegation is pushing to repeal or relax the SALT cap as part of current President Joe Biden’s “Build it Back Better” legislative package.

Tom Suozzi
Tom Suozzi said the Democrats must pass a law to restore SALT deductions.
AP Photo/John Minchillo, File

The congressional Joint Committee on Taxation estimated that repealing the SALT cap could cost the US Treasury $88.7 billion this year.

Congressman Tom Suozzi (D-Nassau/Queens) said Tuesday night that he “never counted on the lawsuit” and said the Democrats — who hold a slim majority in the House and the Senate — must pass a law to restore SALT deductions.

“No SALT, no deal,” said Suozzi, referring to negotiations on infrastructure and other spending Biden and liberal Democrats are pushing in Congress.

But Rep. Alexandria Ocasio-Cortez (D-Bronx/Queens) voted against a bill in 2019 to repeal the cap on SALT deductions, saying it was a giveaway to the wealthy.

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