NY, 3 other states sue Feds over GOP tax overhaul, cap on SALT deduction

ALBANY — New York and three other Democrat-led states sued the Trump administration Tuesday, saying a Republican-led tax overhaul unconstitutionally targeted “blue” states — a claim critics say has little legal merit.

New York filed the lawsuit along with Connecticut, New Jersey and Maryland. The states claimed the tax plan unfairly targeted high income, high local tax states by limiting deductions for state and local taxes (SALT) paid. Once unlimited, those deduction have been capped at $10,000. The deduction has been popular in New York, California, New Jersey and other Democrat-led states.

Cuomo promised the lawsuit back in December, when Trump signed the tax plan into law.

“This is their attempt to hurt Democratic states,” Gov. Andrew M. Cuomo said in a conference call announcing the lawsuit along with state Attorney General Barbara Underwood. “I said at the time it does tremendous damage to this state and the other states but New York is right up at the top of the list.”

The states charge the tax law violated the Tenth Amendment by interfering with the state’s taxing ability, among other claims.

“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,” Underwood said in a statement.

But analysts have cast doubt on the potential success of such a claim.

The nonpartisan Tax Foundation recently issued a report downplaying potential “equal protection” claims by the states, saying the new tax law doesn’t create classes of taxpayers that benefit from it. Separately, it downplayed the Tenth Amendment assertions, saying while the law might put pressure on state officials, it doesn’t commandeer their tax authority.

“The threatened lawsuit may be more a political exercise than a legal one, as a judge is unlikely to rule that the SALT deduction cap violates either the Equal Protection Clause or the Tenth Amendment,” the Tax Foundation report, written prior to the filing of the lawsuit, concluded. “The concern that high state taxes might harm the competitiveness or attractiveness of a state like New York or Connecticut is a valid one, but the solution lays with revisiting those state tax rates rather than meritless litigation.”

SSenate Majority Leader John Flanagan (R-East Northport) jabbed Cuomo for the delay between promising a lawsuit and filing one, saying “we were all beginning to wonder if he had only said it for the headline.” But he went on to say the governor should focus on cutting state taxes and fees, not a federal lawsuit.

“New York cannot sue its way out of high taxes,” Flanagan said.

Cuomo repeated his assertion that the SALT deduction cap will cost New Yorkers $14.3 billion in federal taxes. Critics have said that’s an overstatement because he’s omitting the fact that the federal plan doubled the standard deduction to from $12,000 per married household to $24,000 – meaning only those who deduct more than $24,000 will be affected by the cap. That’s a category that contains 10 percent or less of New York tax filers, critics have said.