GOP Tax Law Violates States' Rights, NY Argues In Lawsuit

NEW YORK, NY — New York State sued the federal government Tuesday in an attempt to block a new cap on federal tax deductions for state and local taxes, arguing the measure violates states' rights under the U.S. Constitution. The $10,000 limit on so-called SALT deductions will cost New Yorkers $14.3 billion in extra federal taxes this year, according to the complaint filed in Manhattan federal court.

The provision in the tax law the Republican-controlled Congress passed last year interferes with states' "sovereign authority to determine their own fiscal policies" and unfairly targets states that have opted to impose higher taxes to fund public investments, the lawsuit argues.

Connecticut, Maryland and New Jersey joined New York in the lawsuit asking the court to declare the SALT cap unconstitutional and stop federal officials from enforcing it.

"We will not allow partisans in Washington to hurt our people or interfere with our policies," New York Attorney General Barbara Underwood said in a statement. "We’ve filed suit against this unconstitutional attack on New York and our state’s fundamental rights – because we won’t stand by and let Washington pick the pockets of New Yorkers."

Gov. Andrew Cuomo pledged a lawsuit over the tax reform package, dubbed the Tax Cuts and Jobs Act, in January. He has lambasted the law as disastrous for taxpayers in New York and other Democratic-leaning states that pay more in taxes to the federal government than they receive in federal aid.

Taxpayers were previously allowed to deduct from their federal income taxes all or most of the state and local taxes, such as property taxes, they paid in a given year. Some 1.3 million New York City residents benefitted from the provision, according to an analysis City Comptroller Scott Stringer's office published last year.

The cap is a departure from more than 150 years of federal tax law, which had allowed state and local deductions so states could set their own taxation policies without undue interference from the federal government, according to the lawsuit.

"The necessity of protecting the States’ sovereign authority to determine their own taxation and fiscal policies was an explicit concern for the Founders at the time of the ratification of the Constitution," the complaint says. "That necessity informed all decisions about imposing the first federal income tax during the Civil War, and it was confirmed in the subsequent enactment history of the Sixteenth Amendment," which explicitly authorized the federal government to collect income taxes.

The lawsuit names the Internal Revenue Service and the U.S. Department of Treasury as defendants, along with Acting IRS Commissioner David J. Kautter and Treasury Secretary Steven T. Mnuchin. The complaint cites Mnuchin's own remark that the SALT cap was meant to "send a message" that states should change how they publicly invest in their businesses and residents.

A Treasury spokeswoman said the department is reviewing the complaint.

(Lead image: Photo by James R. Martin/Shutterstock.com)