Suit claims cap on deduction for state and local taxes violates equal state sovereignty
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Four states filed a lawsuit Tuesday that contends the $10,000 cap on federal tax deductions for state and local taxes is unprecedented and unconstitutional.
The states of New York, Connecticut, Maryland and New Jersey filed the lawsuit in federal court in Manhattan, report the Wall Street Journal, Forbes and Courthouse News Service. A press release is here.
New York Gov. Andrew Cuomo said the law was a political attempt to hurt Democratic states, according to the Wall Street Journal coverage. The story cites a 2015 finding that the blue states had the highest percentage of tax filers claiming deductions for state and local taxes above $10,000.
“The federal government is hellbent on using New York as a piggy bank to pay for corporate tax cuts, and I will not stand for it,” Cuomo said in the press release.
The complaint says Congress enacted the cap to get the plaintiff states to reduce their public spending and change their taxation policies.
The suit claims the cap violates the constitutional guarantee of equal state sovereignty, the 10th Amendment reserving power to the states, and the taxing power given to Congress under the 16th Amendment.
The suit says the founders understood that the federal government’s tax power “is limited by the sovereign and co-equal tax sovereignty of the states,” and the states also had that understanding when they ratified the 16th Amendment.
Since passage of the amendment, Congress has provided a deduction for all or a significant portion of state and local taxes in every federal income tax law, according to the suit. Congress has previously placed general limits on the amount of itemized deductions taxpayers could take based on their income, but it has never before directly limited the deduction of property and state income taxes, the suit states.
