Federal judge dismisses NY's challenge to Trump's 2017 tax law

ALBANY — A federal judge on Monday dismissed a lawsuit brought by New York, New Jersey, Connecticut and Maryland that said President Donald Trump’s 2017 tax law unconstitutionally targeted wealthy, Democratic-led states and increases federal income taxes for high-tax, high-salary areas such as Long Island.

New York is considering an appeal.    

Gov. Andrew M. Cuomo had argued that Trump’s tax law was “coercive” and unconstitutional because the federal government is intruding on state jurisdiction, specifically state income and local property taxes. The new federal law provides temporary income tax breaks to most middle-class New Yorkers as well as permanent tax breaks to corporations. But to help pay for them, the law limits the deductibility of local property and state income taxes to $10,000 when New Yorkers file their federal income tax forms.

That results in a larger federal tax bill for many New Yorkers.

In the lawsuit, New York argued that taxpayers who itemized said an average of $21,943 in deductions on their federal income tax returns. New York further argued the federal cap would mean New Yorkers would pay $121 billion more to the federal government between 2018 and 2025 because of the cap on state and local taxes, referred to in the lawsuit as SALT.

"There is no doubt in my mind that President Trump's unfair tax policy targets New York and other blue states by funding tax cuts for corporations and the rich on the backs of New Yorkers. New York is already the largest 'donor state' in the nation — paying the federal government $36 billion more than we get back every year," Cuomo said in a statement. "We disagree with the court's decision and are evaluating all options including appeal."

The judge agreed the federal tax law broke new ground by capping state and local taxes, but that wasn't enough for it to be ruled unconstitutional.

“The SALT cap, like any other feature of federal law, makes certain state and local policies more attractive than others as a practical matter,” said Judge J. Paul Oetken on his decision. “But the bare fact that an otherwise valid federal law necessarily affects the decisional landscape within which states must choose how to exercise their own sovereign authority hardly renders the law an unconstitutional infringement of state power.”

The judge left the legal window open slightly. He said individual taxpayers may have a case, but the states argued the lawsuit infringed on state rights, not on individual taxpayers’ rights.

“We filed this lawsuit to protect our residents from the cap on the state and local tax deduction, an invasive and unprecedented attempt by the federal government to curtail our states’ constitutional rights,” said state Attorney General Letitia James, who represented the state in the lawsuit. “We remain committed to defending our taxpayers and our state. We will continue to review the decision as we consider all of our options.”

In June, the Internal Revenue Service rejected options that Cuomo crafted and the legislature approved that attempted to work around the federal law. The optional programs used a charitable fund and other means to shield income and property taxes from the federal tax law.

By Michael Gormley

michael.gormley@newsday.com@GormleyAlbany

Michael Gormley has worked for Newsday since 2013, covering state government, politics and issues. He has covered Albany since 2001.