Tax deductions

Court upholds Trump law limiting state tax deductions


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A federal appeals court unanimously dismissed a complaint filed by the former governor on Tuesday. Andrew Cuomo to overturn a tax review law approved by former President Donald Trump in 2017 that limited federal deductions from state and local taxes.

The $ 1.5 trillion law imposed a cap of $ 10,000 on itemized SALT deductions that taxpayers could write off on their federal returns, providing Trump and the then Republican-led Congress with more revenue to pay off. 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.

Trump’s tax reform cut taxes for wealthy Americans and drastically reduced the corporate tax rate from 35% to 21%. But many low- and moderate-income taxpayers also benefited from Trump-era federal tax cuts.

One study even concluded that New Yorkers overall benefited from Trump’s tax changes, contradicting Cuomo’s claims that it caused damage to residents.

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

In a 3-0 decision, the judges of the United States Court of Appeals for the 2nd Manhattan Circuit disagreed, inflicting a crushing defeat on New York and the other plaintiff states.

“What really prompts the complainants to think that Congress is constitutionally precluded from eliminating or reducing the SALT deduction is their position that, until 2017, Congress had never done so. We do not agree that the Constitution imposes such a constraint on Congress, ”said circuit judge Raymond Lohier.

“They are not telling us anything that requires the federal government to protect taxpayers from the real costs of paying their state and local taxes. We reject the claim of the Claimant States that the Constitution imposes the SALT deduction.

A federal appeals court dismissed a complaint filed by the ex-governor. Andrew Cuomo to overturn a Trump-era tax review law.
AP Photo / Mary Altaffer, Pool

New York has claimed in court documents that the SALT cap could drop home equity in the state by more than $ 60 billion, and state spending fall from $ 1.26 to $ 3.15 .
billion dollars and the economy to lose between 12,500 and 31,300 jobs.

Cuomo also estimated that New York taxpayers would pay an additional $ 121 billion in federal taxes from 2018 to 2025 because of the SALT deduction cap.

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

“Without basic numbers to put these numbers into context, however, we are not convinced by the argument. We do not want to downplay the losses of claimant states 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 judgment.

“The SALT deduction cap has no effect on state sovereignty. The disproportionate effect of the SALT deduction cap on claimant states is only because claimant states previously benefited the most from the SALT deduction, not because the cap applies to some states but not to others. 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 laughed at the argument, often cited by Cuomo publicly, that Trump and the Republicans in Congress have unfairly punished the Democratic states.

“Complainant states complain that Congress has 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 negatively affect some states more than others. But the SALT deduction cap is reminiscent of the countless federal laws whose benefits and burdens are unevenly distributed across the country and among different 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, who filed the states appeal, declined to comment.

The New York 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 Democrats must pass legislation to reinstate 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 he “never counted on the trial” and said Democrats – who hold a slim majority in the House and Senate – must pass legislation to reinstate SALT deductions.

“No SALT, no deal,” Suozzi said, referring to negotiations over infrastructure and other spending that Biden and the Liberal Democrats are pushing in Congress.

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

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