U.S. Seeks Dismissal of Suit Over State and Local Tax Deductions
U.S. Seeks Dismissal of Suit Over State and Local Tax Deductions
(Bloomberg) -- The U.S. asked a judge to throw out claims by four states suing to nullify the Trump administration’s $10,000 cap on the federal deduction for state and local taxes.
New York, New Jersey, Connecticut and Maryland sued in July, claiming the 2017 tax-law change targeted them unfairly and overturned more than 150 years of precedent barring the federal government from interfering with states’ taxation policies. The states, all but Maryland led by Democratic governors, claim the change violates the Constitution. They asked U.S. District Judge J. Paul Oetken to block the government from enforcing the cap on the state-and-local-taxes, or SALT, deduction.
The four states claim the cap will make it more difficult to maintain their taxation and fiscal policies, thus “hobbling their sovereign authority to make policy decisions without federal interference.” Caroline Olsen, a lawyer for New York, argued the change will reduce property values in the state by $63 billion and cause a drop in tax receipts to state government.
“No tax deductions are constitutionally required,” Assistant U.S. Attorney Jean-David Barnea argued on behalf of the federal government.
Oetken didn’t signal which way he’s likely to rule. He agreed with Barnea’s argument that “this isn’t a ‘gun to the head’” of the states forcing them to change their tax policy -- using language from a 2012 Supreme Court decision limiting the ability of the federal government to withhold Medicaid funding from states under provisions of the Affordable Care Act. “But it’s a rope to the neck with a gradual squeezing over time,” Oetken said.
The case is State of New York v. Mnuchin, 1:18-cv-6427, U.S. District Court, Southern District of New York (Manhattan).
To contact the reporter on this story: Bob Van Voris in federal court in Manhattan at rvanvoris@bloomberg.net
To contact the editors responsible for this story: David Glovin at dglovin@bloomberg.net, Peter Jeffrey, Steve Stroth
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