National News

New York and New Jersey File Suit Against Trump Tax Plan

Posted July 17, 2018 8:06 p.m. EDT

ALBANY, N.Y. — Four states including New York and New Jersey sued the federal government on Tuesday over a sharp reduction in the deductibility of state and local income taxes, a central part of President Donald Trump’s tax overhaul, saying the change was an “unconstitutional assault” on their sovereignty.

The suit, filed in U.S. District Court in Manhattan, had been promised for months, as Democratic leaders of several states denounced the president’s plans, including Gov. Andrew Cuomo, who had called the limits on such deductions an “economic missile” at the heart of New York, already a high-tax state, and its economy.

On Tuesday, Cuomo reiterated that criticism and rhetoric in a news conference, saying that the Republican-backed plan is “attempt to hurt Democratic states.”

“It is totally repugnant and hypocritical of the fundamental conservative ideology which they preach — the limited federal government, respect state rights,” the governor, a second-term Democrat seeking re-election in the fall. “This tramples on their own theory. And it is politically motivated.”

The legal argument leans on interpretations of the 10th amendment — states’ rights — and the 16th, which established federal powers of taxation, arguing that the new law effectively overturns long-standing precedent that “the federal government’s income tax power was and would remain subject to federalism constraints,” according to the suit.

It also argues that the limits on the deduction, and the potential economic damage as a result of its implementation, “deliberately seeks to compel certain states to reduce their public spending.”

The suit is the most substantive salvo in Cuomo’s monthslong campaign against any change in the “SALT deduction” on state and local income taxes, as well as property taxes. Such deductions had typically been revered in states with high property taxes — like New York, New Jersey and Connecticut, all plaintiffs in the suit, along with Maryland — because of the tax relief it provided as well the incentive for homeownership.

Trump’s tax plan, signed in December, places a limit of $10,000 on combined income, sales or property taxes.

Whether the suit will find a receptive audience in the federal courts — or on a conservative-leaning Supreme Court — is an open question. Brian Galle, a professor of law at Georgetown University, said the suit was “an original work of scholarship,” basically arguing that when the federal government imposes taxes, it had to reduce the collateral impact on a state’s ability to raise its own funds.

“The complaint is not frivolous, it is not crazy,” Galle said. “It is also probably not a winner.”

David Carl Kamin, a professor of law at New York University, concurred, saying that the courts had given broad discretion to Congress “on what deductions are allowed and not allowed,” citing the Alternative Minimum Tax.

“I think the policy is poorly designed for a number of reasons, and I think Congress should revisit it,” he said of the tax law. “But it seems a situation in which the courts are unlikely, and probably shouldn’t, intervene.”

The suit, which was joined by Barbara Underwood, the New York attorney general, is one of several efforts to fight and mitigate the tax law undertaken by Cuomo and Gov. Philip D. Murphy of New Jersey, including the creation of charitable funds that residents could donate to and then deduct those donations from federal taxes.

The fight over the deduction also became a potent political talking point last fall for Cuomo, who called its supporters traitors and has continued to use it as a reason to vote Republicans out of office in November. On Tuesday, he echoed those remarks, calling the tax policy and other Republican plans, “repugnant to this state, repugnant to the Constitution and the values of the American people.”

The governor’s remarks were met with a sharp retort from the Republicans who lead the state Senate and are fighting to maintain their single-seat majority in the face of a wave of retirements and Democratic optimism. In a lengthy statement, state Sen. John J. Flanagan, the Republican leader, mocked the governor’s timing in filing the suit — long after he threatened one — and a series of recent revenue ideas the GOP opposed during the most recent budget negotiations in March.

“After this long of a delay, we were all beginning to wonder if he had only said it for the headline,” said Flanagan, who represents Long Island. “Talk is cheap, but the governor’s taxes are not.”

The Treasury Department, which along with the IRS, are defendants in the suit, had little comment beyond saying that they were reviewing it.