A group of high-tax blue states is asking the Supreme Court to undo a cap on the state and local tax deduction after a lower court rejected their lawsuit, The Hill reports.
The 2017 Republican Trump-era tax cuts overwhelmingly flowed to the rich while growing the deficit by more than $1.5 trillion. But one of the rare “progressive” provisions in the bill was to cap the state and local tax deduction at $10,000.
Blue states have argued that Republicans intended to use the provision to punish states that have high taxes to pay for liberal programs but economists say the cap was a step in the right direction because it overwhelmingly flows to the top 5% of earners.
Some coastal state Democrats pushed the party to eliminate the cap or roll back the limit in President Joe Biden’s Build Back Better proposal. Congress appeared to be headed for a measure to drastically increase the limit before West Virginia Sen. Joe Manchin blew up negotiations in December.
Supreme Court filing;
New York, New Jersey, Connecticut, and Maryland filed a petition to the Supreme Court asking them to hear their lawsuit challenging the cap.
“I am proud we are taking this issue to the Supreme Court to continue to fight on behalf of New York taxpayers," said New York Gov. Kathy Hochul.
The filing argues that the court should take up the case because “Congress’s unprecedented curtailment of the SALT deduction presents a novel and important question about the limits of federal taxation power.”
Appeals court rejected:
A federal appeals court in October rejected the states’ lawsuit.
“We conclude that the SALT deduction cap is constitutional,” Judge Raymond Lohier, an Obama appointee, wrote in the unanimous opinion. “In summary, 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.”
The states’ petition argues that the appeals court was wrong.
“Contrary to the court of appeals’ reasoning, the SALT deduction is not merely a matter of congressional grace,” the filing says “Rather, the deduction is rooted in the structural limitations placed on the federal government by basic federalism principles in the Constitution.”