The states of New York, Connecticut, Maryland and New Jersey have all sued the U.S. government in federal court over a part of the Tax Cuts and Jobs Act. The states are suing the government saying that the new $10,000 cap on state and local tax deductions (SALT) is an “unconstitutional assault on states’ sovereign choices.”
The Tax Cut and Jobs Act changed several deductions including the SALT deduction that limited how much state and local taxes a taxpayer could write off for their federal tax return. Along with SALT changes, the tax reform also cut the corporate tax rate and nearly doubled the standard deduction. While other personal exemptions and deductions were axed, SALT was kept, but the new limit means homeowners in states with high property tax will likely be impacted the most. The states’ complaint argues that “the SALT deduction is essential to prevent the federal tax power from interfering with the State’s sovereign authority to make their own choices about whether and how much to invest in their own residents.” The four states said the cap will depress home prices, spending, job creating and economic growth, and impede their ability to pay for essential services such as schools, hospitals, and police.
In 2015, the average SALT deduction for New Yorkers who claimed the break was more the $22,000 according to the Tax Policy Center. In New Jersey, the average was around $18,000. The tax break dates back to 1914 and the tax break has gone through various changes since then. Taxpayers with higher income will be hit the most by the cap, as 30% of the taxpayers who took the SALT deduction in 2014, 88% of those were from households with incomes above $100,000, according to a 2017 study by the Tax Foundation.
A spokeswoman for the Department of the Treasury said the agency was reviewing the complaint. To learn more about the changes caused by the new tax law, click here.