U.S. Supreme Court snubs challenge to state and local tax deduction cap

[Calista241]

Source: Reuters

The U.S. Supreme Court on Monday rejected a bid by four Democratic-leaning states to lift a cap on federal deductions for state and local taxes put in place as part of a 2017 tax overhaul under Republican former President Donald Trump.

The justices turned away an appeal by New York, Connecticut, Maryland and New Jersey after a lower court threw out their lawsuit. The lower court held that the U.S. Congress had broad authority over taxes and did not violate the U.S. Constitution by placing a $10,000 limit on the amount of state and local taxes that individuals may deduct on federal income tax returns.

Democratic President Joe Biden's administration opposed the four states.

The deduction limit, known as the SALT cap, was part of a Republican-backed federal tax law signed by Trump that slashed the corporate tax rate and implemented an income tax cut for individuals, which tax policy experts said benefited wealthy Americans the most.

Democrats had opposed the law, which was expected to reduce federal revenues by $1.5 trillion over 10 years. Capping the deduction disproportionately affects high-tax, often Democratic-leaning states, with New York estimating its taxpayers would pay $121 billion of extra federal taxes from 2018 to 2025.

Read more: https://www.reuters.com/legal/government/us-supreme-court-snubs-challenge-state-local-tax-cap-2022-04-18/

[MANative]

1. I'd love to know why the Biden admin opposed this challenge

The SALT caps are very costly for those of us in the Northeast. I pay that $10K in real estate taxes alone every year, so mortgage interest deductions, etc., are basically worthless.

[bamagal62]

3. THIS.

It seems very unfair.

[lapucelle]

8. It was Biden's treasury secretary and others in the executive branch who were being sued. N/T

[BumRushDaShow]

6. Because

Matt Ford/April 6, 2022
A Fight Between the Biden Administration and Coastal Democrats Could Be Headed for the Supreme Court



(snip)

The two sides find themselves defending things that they might otherwise not: for blue states, the high tax bills of their wealthiest residents and for the Biden administration, a vindictive piece of Trump-era legislation that could harm some of the president’s allies and supporters. The case focuses on the state and local tax deduction, more commonly known as the SALT deduction. The tax-code provision generally allows people to deduct their state and local tax payments when they file their federal taxes. Congress first included the deduction in 1913 shortly after the Sixteenth Amendment’s ratification gave it the power to levy an income tax. Its defenders argue that it protects Americans from “double taxation” by harmonizing state, local, and federal taxes.

That changed in 2017 when Republicans passed the Tax Cuts and Jobs Act. The tax-code overhaul was a bonanza for the richest Americans; everyone else saw few benefits from it. But it capped the SALT deduction, which had previously been unlimited, at $10,000 each year, making it an outlier provision because it fell harder on Americans who already pay high state income and property taxes. The SALT-deduction cap added tens of thousands of dollars to the final tax bills of sufficiently wealthy residents of states such as California and New York.

(snip)

The states have countered that they paid far more in federal taxes than they received in federal spending even before the SALT cap’s imposition. Efforts to reverse the SALT-deduction cap in Congress have run aground even though Democrats control both chambers and the White House. For some blue-state lawmakers, the issue was significant enough that they formed their own caucus around its repeal. Last April, a group of House Democrats from New York told Speaker Nancy Pelosi and Senate Majority Leader Chuck Schumer that the issue “is so critical to our state and our constituents that we will reserve the right to oppose any tax legislation that does not include a full repeal of the SALT limitation.”

But that drumbeat ran afoul of the rest of the party’s messaging, which opposes tax cuts for wealthy Americans. New York Representative Alexandria Ocasio-Cortez described a potential SALT-cap repeal as a “giveaway to the rich” and a “gift to billionaires” even as she conceded that it might be unfair to blue-state residents. The New York Times’ editorial board, which also opposed repeal, noted that 54 percent of the benefits of repeal would go to the wealthiest 1 percent of households, which would “on average [be] paying about $36,000 less per year in federal income taxes.”

(snip)

https://newrepublic.com/article/166009/salt-deduction-new-york-yellen-case-supreme-court

Apparently a "fix" had been planned in BBB but we all know what happened to that (at least for now).

And at the very end of the OP article -

Most of the 2017 law's individual tax provisions, including the SALT cap, expire after 2025.

[lapucelle]

7. Secretary of the Treasury Janet Yellen & others in the United States government were the defendants

in the cases.

www.supremecourt.gov/DocketPDF/21/21-966/218185/20220309160554523_21-966%20-%20New%20York%20Opp%20Final.pdf

[FBaggins]

10. Because there's a difference between bad policy and constitutional violations

Congress has the power to do many things that it shouldn’t… and also lacks the power to do many things that might be a good idea.

[cstanleytech]

12. Because it could have backfire down the road when it came to the federal government having the power

to raise taxes.

[Wuddles440]

16. It just didn't screw...

taxpayers in the "blue" states. I'm in Ohio (aka Florida of the Midwest) and the cap along with the loss of the deduction for personal exemptions has caused my effective rate to increase 4% since the GQP passed their tax scam.

[Hoyt]

2. Of course Congress has power to levy taxes and limit deductions, even if

if some don’t like the results. Be careful who we vote into office.

[JohnSJ]

9. Thank-you. That is the reason.

[madville]

15. Exactly

There was zero chance the courts would rule that the federal government doesn’t have that power.

[jaxexpat]

4. Some way on another.....

.....we need to close the wealth gap. It's the key to restoring democracy. It's as important as climate control and the mechanisms for both, maybe all three, tasks probably will turn out to be the same.

Problem? Start with this historical fact: the greatest wealths of the world have always started with war.

Confiscatory taxation is the quickest way to restabilize just about every legitimately rational social norm.

[MichMan]

5. This challenge had no chance of winning

Every tax law affects states disproportionally. Higher or lower taxes on the wealthy impacts' states with higher numbers of wealthy people. Higher deductions for children will affect states that have higher percentages of children living there compared to others. Raising or lowering taxes regarding deductions for farming has more effect on agricultural states. Higher gasoline taxes affect states where people drive more miles. etc. etc.

[PoliticAverse]

18. Indeed. n/t

[ZonkerHarris]

11. The court is saying Congress can tax Americans unequally and they don't care.

Wait til they get to slavery and separate rules for different states.

[MichMan]

13. We tax people unequally all the time with progressive tax rates, for just one example.

The 10K cap on deducting SALT taxes isn't one of them, however, as it applies to every individual taxpayer regardless of income or state of residence. Whether a taxpayer lives in New Jersey or Alabama, they can only deduct the same amount of $10k in State & Local Taxes.

[madville]

14. That's our entire existing tax system

Tax brackets increase with taxable income, credits such as the child tax credit and earned income credit are only available to people under a certain income, etc. The system taxes everyone unequally in some way and has been ruled Constitutional many times the last century.

[PoliticAverse]

17. Actually they are saying Congress can tax Americans the same.

The SALT deduction allows people with the same income to pay different amounts of Federal tax.

[bucolic_frolic]

19. Power to tax rests with Congress

ACA was ruled as a part of a power to tax. SCOTUS doesn't want to go any further down the tax road.