Elimination of Full State and Local Deductibility Unfairly Targets New York, New Jersey and Connecticut
Coalition to Sue the Federal Government Represents First Step in Governor Cuomo's Three-Pronged Effort to Protect New Yorkers from the Federal Tax Bill
Earlier today, Governor Andrew M. Cuomo announced that New York, New Jersey, and Connecticut have launched a coalition to sue the federal government to challenge the new GOP tax bill that eliminates full state and local tax deductibility. This provision effectively preempts the states' ability to govern by reducing the ability to provide for their own citizens and unfairly targets New York and similarly situated states in violation of the Constitution. More information is available here.
AUDIO of the conference call is available here.
A transcript of the conference call is available below.
Governor Cuomo: Thank you all very much for joining. I'm pleased to join my neighbors and colleagues. Governor Malloy, who we've done a lot of work with together and has been a great leader for the Democratic Governors Association and a great neighbor. Governor Phil Murphy, who I'm excited about our partnership and we're going to do together because we have a lot of connections and a lot of joint projects, and Governor Murphy is off to a great start. So it's all good. We want to talk about tax reform, the tax reform bill that was signed in December by President Trump. We've had conversations about it before on various aspects individually and collectively. We've talked about how we find the philosophy of the tax cut repugnant. They call it a middle class tax cut but 80 percent goes to the top 1 percent. Talk about a misleading labeling. We have also talked about the practicality of the bill, that it severely impacts in a negative way our states among 12 states that bear the burden of this bill. 12 states are basically used as the financing mechanism for the tax cut for the rich in the rest of the country. They put in the $10,000 limit that might work well in other states but it leaves many people in danger and our states, our three states alone represent 12 percent of the GDP. When you put the 12 states that are negatively affected together, it's over 40 percent. And the practical effect. When you hit property taxes and income taxes, talking about education services, public safety, you're going to a poor vision of what state and local government provides.
Today we're focusing on the legality of the issue and we're announcing the formation of a multi-state coalition that is in formation and is going to file a legal action challenging the constitutionality of their provision. There is a very strong argument that the bill is a fundamental violation of states' rights and repugnant to the very concept of federalism that formed this nation. There's a very strong argument that it's a violation of the equal protection clause, top 12 states that get hurt coincidentally all happen to be Democratic states, coincidentally have virtually no representation in the United States Senate, coincidentally have small minority of House members, coincidentally are states that President Trump lost in the last election, and there is no doubt that their tax reform plan takes from the 12 and distributes to the remaining states. Now, this state and local deductibility issue is not a new issue. It has come up before. And it has been debated before and I just want to read you a couple of factual lines.
July 1, 1862, President Abraham Lincoln signed the first federal tax, the Revenue Act of 1862. It was the first national income tax, 3 to 5 percent to pay for the Union effort in the Civil War. It said in Section 91, "All other national state and local taxes shall first be deducted to determine the taxpayer's liability for the income tax." The Chair of the House Ways and Means who sponsored the bill said that as a matter of simple logic the deduction would be necessary both to avoid double taxation and to preserve the principle of federalism. The National League of Cities in 1985, when President Reagan spoke about this, passed a resolution that said the provision of the federal income tax code that allows taxpayers to deduct their state and local tax obligations from their federal taxable income is a fundamental statement of the historical right of state and local governments to raise revenues, and of individuals not to be double taxed. This violates both principles clearly. The states' right to tax for state services. States are not colonies of the federal government. Federalism was a covenant. It was shared power. And the federal government shall not trample the states' powers. And from an individual's point of view, this is purely double taxation. You are getting taxed on your state income tax and your property tax. So not only do we find it philosophically repugnant and practically damaging, but legally, we believe there's a very strong argument that it's unconstitutional and we're going to be working together to form a multi-state coalition that will challenge this in court. With that, let me turn in over my friend Dan. Governor Malloy.
Governor Malloy: Andrew, thank you very much for leading off with a great discussion of the history of income tax and again, let's be very clear that this is a dramatic break with the past. I would argue a break with the covenant with the states exercise and establishing permanently the federal income tax, but I'm going to take a slightly different tact. Knowing what the Governor would do, I want you to understand for those who are on the call that $483,790 taxpayer filings participate in the SALT deduction. This change, enacted in a bill that will explode the national debt, take away coverage for 13 million people for healthcare and do other great damage to our state and individually. This particular change will effect 171,118 tax filings in our state, representing hundreds of thousands of individuals and have a cost of over $10 billion. The Governor was kind enough to point out that the state effected forty percent of GDP. This is an assault on those state. It is, I believe, illegal. That's why we're forming this coalition and standing up and saying that this can't happen. It's why we are urging the other states to join us and I believe in the coming days and weeks we'll have additional states joining us. But we just can't allow these kinds of changes. Understand that all twelve of those states were already donor states to begin with, but we were donor states formulations and history. What is happening here is a frontal attack on the ability of our state to pay for things like education, most particularly, and other services that our citizens receive. I'll also point out that the states effected will have higher costs for different reasons. Some of those are environmental. We have to heat in the winter and cool extensively in the summer, for instance. We also have an older population that require additional services that other states don't have to do. In so many ways, these changes discriminate against our state, against our economy, against the individual citizens that live in our state, and someone has to stand up and say, "Not at this time. You can't do this. It is fundamentally unfair and illegal." I'm going to turn it over to my good friend, Bill Murphy, who is all the way, I think 10 days into his administration. Let's get his input as well.
Governor Murphy: Thank you, Dan. So far, so good as they say. I want to thank both the Governors. You're known by the company you keep and we're keeping darn good company today. I would also say that I'm in violent agreement with literally everything that's been said, so I'll be brief. I'm very pleased that our administration is going to act in concert with other likeminded sister states and challenge the constitutionality of this awful law. Just, in fact, this week New Jersey took the first step and signed a common interest agreement with New York and California, Connecticut, and others I know are right in the boat with us and that's the first step to file a constitutional challenge to the law. Governor Cuomo went through the history of this which was extremely well articulated. This, the SALT deduction predates the federal income tax as we currently know it. It's unambiguous. This capping, and both Governors have really made this point, it has nothing to do with sound policy. It's clear. It's politically motivated. It's punishment of blue states like new Jersey, New York, and Connecticut, and others, who already pay far more into the federal government than we receive. I'm not going to let it happen. I know Andrew and Dan are not going to let it happen. I pledge that our administration is going to explore every legal mechanism to fight for our taxpayers and that's exactly what we're doing today. I'd say two other quick comments. Someone asked me, are you doing this symbolically? I said heck no. We believe substantively there is a very strong case and the more likeminded states who join us, I think the better our shot.
Secondly, we're not ignoring other avenues. Our creative juices are flowing. I know they're flowing in New York and Connecticut. We've talked a lot about pursuing the charitable contribution piece. Governor Cuomo has also talked a lot about the payroll tax which we also think is a potential avenue. So just because we're taking aggressive legal action as a group of states doesn't mean that our creative juices and other alternatives will be ignored or shut back. And lastly, the hypocrisy in the republican party in congress and in this administration is jaw dropping and the deficit hawks apparently took a nap for a couple of months. As both Governors have stated, the national debt is going to explode, our deficits are going to explode and sure as we're sitting here, as bad as this tax bill is, right around the corner the deficit hawks will reawaken, the same folks who brought you this tax bill and they'll start talking about needed to cut into the big entitlement programs like Medicare, Medicaid, Social Security, which in particular states like ours rely upon disproportionally and so this is one battle in a broader war and I'm honored to be fighting it with my colleagues on the phone today and with others.