New York State Hits Back Against Tax Reform Law

John Jordan | July 2018

New York Gov. Andrew Cuomo traveled to Elmsford in April where he criticized the federal tax reform law and promised the state would file suit against the SALT deduction caps.

NEW YORK CITY—New York Gov. Andrew Cuomo followed through on his threat and announced on Tuesday that New York State had filed a lawsuit against the federal government over what it termed as the unconstitutional federal tax reform law enacted earlier this year.

The lawsuit contends the new SALT (state and local tax) 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 long-promised lawsuit filed by New York State Attorney General Barbara D. Underwood specifically points to the federal tax reform law capping the SALT deduction at $10,000 as damaging to state taxpayers. The litigation was joined by the attorneys general of Connecticut, Maryland and New Jersey.

An analysis by the New York State Department of Taxation and Finance shows the cap will increase New Yorkers’ federal taxes by $14.3 billion in 2018 alone, and an additional $121 billion between 2019 and 2025. State officials contend “the law flies in the face of centuries 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.”

“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,” Governor 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% 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.”

Attorney General Underwood adds, “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.”

Some of the other issues citied in the litigation include charges that federal policymakers openly talked about coercing states like New York to change their policy choices; US Treasury Secretary Steve Mnuchin stating that the change was intended to “send a message” to states to get them to change their taxation and fiscal policies and President Trump advisor Stephen Moore, who worked on the Trump campaign on tax policy, calling the SALT changes “Death to Democrats.”

State officials said the SALT cap will depress home values in New York and other states, while also reducing state tax revenues, thus forcing states to choose between higher tax rates or cutting investments in education, public services and other vital programs.

The lawsuit also points to 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.”

Earlier this year, New York State instituted some workarounds geared at giving state taxpayers some options to circumvent some of the onerous provisions of the federal tax reform law that provides new options for tax deductible charitable donations, creates a new Employer Compensation Expense Program so employers can help their employees maximize deductibility, and decouples the state tax code from the federal tax code, where necessary, to avoid more than $1.5 billion in estimated state tax increases brought solely by increases in federal taxes.

John Jordan
Editor, Real Estate In-Depth