Cuomo Sues Federal Government Over SALT Deductions

New York Gov. Andrew M. Cuomo and Attorney General Barbara D. Underwood filed a lawsuit Tuesday that they claim will protect New York taxpayers from the curtailment of the State and Local Tax (SALT) deduction under the tax plan passed last year. The lawsuit argues that the new SALT cap was enacted to target New York and similarly situated states, that it interferes with states' rights to make their own fiscal decisions and that it will disproportionately harm taxpayers in these states.

The 2017 federal tax law reduced the deduction by capping it at $10,000. An analysis by the New York State Department of Taxation and Finance shows that the cap will increase New Yorkers' federal taxes by $14.3 billion in 2018 alone, and an additional $121 billion between 2019 and 2025. As set forth in the complaint, Cuomo says the law flies in the face of precedent, which establishes constitutional limits on the federal government's ability to use its tax power to interfere with the sovereign authority of the states.

Westchester County Executive George Latimer thanked Cuomo for moving to sue the feds to get the $10,000 cap on SALT deductions overturned.

"This federal tax law is not only double taxation but it also unfairly targets communities like Westchester county — and every homeowner in this county is a victim," he said. "In Westchester, where the average home is valued at $691,392, home values are projected to take a 7.6 percent hit. The decrease in home values is the largest in the state.

"Our homes are our greatest asset and this cap is a hit to our wallet," Latimer said. "We cannot stand for this — and we won’t. I intend to support the governor and his efforts to overturn the SALT deduction cap.”

This new curtailment of the SALT deduction has both the purpose and effect of harming New York, other similarly situated states, and their residents, Cuomo said. Among other things, the new cap could depress home prices, spending and business sales, and result in slower growth for the New York economy and fewer jobs. The lawsuit, filed Tuesday in the U.S. District Court for the Southern District of New York, was led by Attorney General Underwood and joined by the Attorneys General of Connecticut, Maryland and New Jersey.

"The federal government is hell-bent on using New York as a piggy bank to pay for corporate tax cuts and I will not stand for it," Cuomo said. "Today I'm proud to announce that New York is the first state in the nation to take legal action against Trump's tax plan that benefits the 1 percent at the expense of middle-class families. We will fight back at every turn against President Trump and the federal government's partisan assault to protect the people of New York."

Cuomo said there is other evidence in the complaint to show the tax law targeted New York:

• Policymakers openly talked about coercing states like New York to change their policy choices.
• Treasury Secretary Steve Mnuchin said that the change was intended to "send a message" to states to get them to change their taxation and fiscal policies.
• Stephen Moore, who advised the Trump campaign on tax policy, said it even more bluntly, calling the SALT changes "death to Democrats."
• By depressing home values, the new provision will hurt taxpayers in New York and other states, while also reducing state tax revenues — forcing states to choose between higher tax rates or cutting investments in education, public services and other vital programs.
• The new cap on the SALT deduction also violates the constitutional principle of equal state sovereignty by targeting a handful of states for unfavorable treatment based on their sovereign policy choices.

The lawsuit also highlights the enactment history of the 16th Amendment, which confirms that the federal government's tax power has limits, and that it cannot be used to intrude on the sovereign authority of the states to determine their own taxation and fiscal policies.

"New York will not be bullied. This cap is unconstitutional — going well beyond settled limits on federal power to impose an income tax, while deliberately targeting New York and similar states in an attempt to coerce us into changing our fiscal policies and the vital programs they support," said Underwood. "We will not allow partisans in Washington to hurt our people or interfere with our policies. We've filed suit against this unconstitutional attack on New York and our state's fundamental rights — because we won't stand by and let Washington pick the pockets of New Yorkers."

Written by Alex Costello, Patch Staff, with additional reporting by Michael Woyton, Patch Staff.

Photo courtesy Gov. Cuomo's Office.