ALBANY — So far, New York Democrats have been fighting a losing battle on “SALT.”
Put aside, for a moment, whether fighting the Trump administration over the new limit on the amount of state and local tax (SALT) deductions a person can claim on federal tax filings will prove to be a winning political strategy. How much it will help Democrats is to be determined. But it is clear that they are losing when it comes to actually repealing the cap, which was a key component of the 2017 federal tax overhaul approved by President Donald Trump and a Republican-controlled Congress. At this point.
A pair of lawsuits, filed just days ago, are the Democrats’ latest long-shot attempts.
At issue is a $10,000 limit on the amount of state and local property and income taxes people can deduct from their federal taxes.
Previously, there was no limit on such deductions, which were popular in high-tax states such as New York, New Jersey and others — almost all primarily Democrat-run states.
Gov. Andrew M. Cuomo and others called for Congress to repeal the cap. But that amounts to a gesture, what with Republicans controlling the Senate.
They sued the Trump administration over the legality of the 2017 federal tax law itself, a case still winding through courts.
Meanwhile, the states began devising “workaround” schemes to circumvent the cap. This involved approving a law that would let people pay local property taxes as charitable contributions, which could then be claimed on federal returns. Suffolk County Executive Steve Bellone proposed a similar end run on the local level.
The Internal Revenue Service squashed such policies in June by adopting rules effectively blocking them.
Following that loss, Sen. Chuck Schumer (D-N.Y.) led a push with New Jersey and Connecticut to pass a bill to kill the IRS rule — another unlikely prospect in the Senate.
And in the latest, the same three states sued the IRS to overturn the rule. Two Westchester County municipalities filed a separate, but similar, lawsuit on the same day.
“The states saying the SALT limitation itself is unconstitutional is definitely a long shot,” Tim Noonan, a tax attorney at Hodgson Russ in Manhattan, said of the 2018 lawsuit.
The second claim, trying to establish a charitable fund workaround, “has a little more merit because the IRS has allowed somewhat similar schemes in the past,” he noted. That said, other tax end runs were “not as blatant” as the ones championed by New York and others.
“Ultimately, that might be what sinks it,” Noonan said.