A federal appeals court Tuesday unanimously rejected a suit filed by ex-Gov. Andrew Cuomo to overturn a tax overhaul law approved by former President Donald Trump in 2017 that limited federal deductions on state and local taxes.
The $1.5 trillion law imposed a $10,000 cap on itemized SALT deductions that taxpayers could write-off on their federal returns, which provided Trump and the then-Republican-led Congress more revenues to pay for other federal tax cuts.
The SALT cap largely affects the wealthiest taxpayers in high tax Democratic states in the Northeast — New York and New Jersey, and Connecticut, as well as California.
The Trump tax reform cut taxes for wealthy Americans and dramatically slashed the corporate tax rate from 35 percent to 21 percent. But many low and moderate income taxpayers also benefited from the Trump-era federal tax cuts.
One study even concluded that New Yorkers overall benefitted from the Trump tax changes, undercutting Cuomo’s claims that it damaged residents.
New Jersey, Connecticut and Maryland joined New York in what many experts believed was a long-shot bid to overturn the federal law that limited the SALT deduction. Cuomo and other plaintiffs claimed the law was unconstitutional and trampled on state’s rights and sovereignty.
In a 3-0 decision, the judges for the US Court of Appeals for the 2nd Circuit in Manhattan disagreed, delivering a stinging defeat to New York and other plaintiff states.
“What really propels the plaintiffs’ view that Congress is constitutionally foreclosed from eliminating or curtailing the SALT deduction is their position that, until 2017, Congress had never done so. We disagree that the Constitution imposes such a constraint on Congress,” said Circuit Judge Raymond Lohier.
“They point us to nothing that compels the federal Government to protect taxpayers from the true costs of paying their state and local taxes. We reject the Plaintiff States’ contention that the Constitution mandates the SALT deduction.”
New York claimed in court papers that the SALT cap could cause home equity values in the state to plummet by over $60 billion, in-state spending to decrease by $1.26 to $3.15
billion, and the economy to lose between 12,500 and 31,300 jobs.
Cuomo also estimated New York taxpayers would pay $121 billion of extra federal taxes from 2018 to 2025 because