Federal Tax Law Will Cost New Yorkers $14.3 Billion in 2018 Alone
Lawsuit Cites Evidence that Federal Tax Law Targets and Will Disproportionately Harm New York and Similar States, While Interfering with States' Rights to Make Own Fiscal Decisions
New York Joined by Connecticut, Maryland, New Jersey in Suit Filed Today in Southern District of New York
Governor Andrew M. Cuomo and Attorney General Barbara D. Underwood today filed a lawsuit to protect New York and its taxpayers from Washington's drastic curtailment of the State and Local Tax (SALT) deduction. The lawsuit argues that the new SALT cap was enacted to target New York and similarly situated states, that it interferes with states' rights to make their own fiscal decisions, and that it will disproportionately harm taxpayers in these states.
The 2017 federal tax law, which resulted from a hyper-partisan and rushed process, drastically reduced the deduction by capping it at $10,000. An analysis by the New York State Department of Taxation and Finance shows that the cap will increase New Yorkers' federal taxes by $14.3 billion in 2018 alone, and an additional $121 billion between 2019 and 2025. As set forth in the complaint, the law flies in the face of centuries of precedent, which establishes constitutional limits on the federal government's ability to use its tax power to interfere with the sovereign authority of the states.
For the entire history of the United States, every federal income tax law protected the sovereign interests of the states by providing a deduction for all or a significant portion of state and local taxes. This uninterrupted history demonstrates that the unprecedented cap on the SALT deduction is unconstitutional, as the lawsuit notes. This new, drastic curtailment of the SALT deduction has both the purpose and effect of harming New York, other similarly situated states, and their residents. Among other things, the new cap will depress home prices, spending, and business sales, and result in slower growth for the New York economy and fewer jobs. The lawsuit, filed today in the U.S. District Court for the Southern District of New York, was led by Attorney General Underwood and joined by the Attorneys General of Connecticut, Maryland, and New Jersey.
"The federal government is hell-bent on using New York as a piggy bank to pay for corporate tax cuts and I will not stand for it," Governor Cuomo said. "Today I'm proud to announce that New York is the first state in the nation to take legal action against Trump's tax plan that benefits the 1 percent at the expense of middle-class families. We will fight back at every turn against President Trump and the federal government's partisan assault to protect the people of New York."
"New York will not be bullied. This cap is unconstitutional - going well beyond settled limits on federal power to impose an income tax, while deliberately targeting New York and similar states in an attempt to coerce us into changing our fiscal policies and the vital programs they support," said Attorney General Underwood. "We will not allow partisans in Washington to hurt our people or interfere with our policies. 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."
Among the other evidence cited in the complaint:
- Policymakers openly talked about coercing States like New York to change their policy choices.
- Treasury Secretary Steve Mnuchin said that the change was intended to "send a message" to states to get them to change their taxation and fiscal policies.
- Stephen Moore, who advised the Trump campaign on tax policy, said it even more bluntly, calling the SALT changes "Death to Democrats."
- The new provision will raise billions of dollars in federal taxes from New Yorkers and others in similarly situated states - including $14.3 billion from New York alone in 2018.
- By depressing home values, the new provision will hurt taxpayers in New York and other states, while also reducing state tax revenues - forcing states to choose between higher tax rates or cutting investments in education, public services, and other vital programs.
- The new cap on the SALT deduction also violates the constitutional principle of equal state sovereignty, by targeting a handful of states for unfavorable treatment based on their sovereign policy choices.
The lawsuit also highlights the enactment history of the Sixteenth Amendment, which confirms that the federal government's tax power has limits, and that it cannot be used to intrude on the sovereign authority of the states to determine their own taxation and fiscal policies.