Tax Law's Cap on State and Local Deductions Is Upheld by Court
Source: New York Times
Congress didn’t unconstitutionally penalize Democratic-leaning states when it imposed a cap on federal deductions for state and local taxes, a federal judge ruled Monday. The 2017 federal tax law, which President Trump signed after a party-line vote in Congress, 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 provision, known as the SALT cap, disproportionately affected residents of wealthy, high-tax states, where residents are more likely to have state tax bills that exceed the $10,000 limit. Four states, including New York, sued the federal government last year, arguing that the cap is an “unconstitutional assault” on their sovereignty. But on Monday, a Federal District Court judge in Manhattan rejected that argument.
“The court recognizes that the SALT cap is in many ways a novelty,” the judge, J. Paul Oetken, wrote in his decision. “But the states have failed to persuade the court that this novelty alone establishes that the SALT cap exceeds Congress’s broad tax power.” The other states joining in the suit were New Jersey, Connecticut and Maryland.
The cap on state and local tax deductions, which had been unlimited, was one of a handful of provisions intended to offset the cost of trillions of dollars in tax cuts included in the 2017 law. The Joint Committee on Taxation, Congress’s nonpartisan scorekeeper on tax matters, estimated the cap and related provisions would raise close to $700 billion in revenue over 10 years.
Read more: https://www.nytimes.com/2019/09/30/business/economy/state-local-tax.html
The judge is an Obama appointee (case was argued in SDNY).
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