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US States Rally Against New SALT Deduction Cap

Mike Godfrey, Tax-News.com, Washington

29 January 2018


New York, New Jersey, and Connecticut have launched a coalition to sue the federal government to challenge provisions in the Tax Cuts and Jobs Act that eliminate full state and local tax deductibility.

The new law caps state and local property and income tax (SALT) deductions at USD10,000. The states say the provision affects their ability to govern and unfairly targets states that pay higher SALT deductions, in violation of the Constitution.

"New Yorkers will not stand idly by as the federal government fires an economic missile at the fiscal health of our state," said New York Governor Andrew M Cuomo in a statement on January 26. "The elimination of full state and local deductibility is a blatantly partisan and unlawful attack on New York that uses our hardworking families and tax dollars as a piggy bank to pay for tax cuts for corporations and other states. This coalition will take the federal government to court to protect our residents from this assault."

"The GOP tax legislation gave massive handouts to the wealthiest one percent and stuck middle class taxpayers with the bill," said Connecticut Governor Dannel Malloy. "This law does real harm to Connecticut taxpayers, who stand to lose over USD10bn dollars in state and local tax deductions. Hundreds of thousands of residents could see a tax increase even as their property values decrease."

New York residents claimed an average SALT deduction of USD22,169 in 2015, according to the data released by the Tax Policy Center in October 2017. Taxpayers in Connecticut claimed an average of USD19,665 while New Jersey residents claimed USD17,850.

According to a recent report from the State Department of Tax and Finance, the elimination of full SALT deductibility could cost New York an additional USD14.3bn.

"The new federal law disproportionally impacts the State of New York, which already sends USD48bn more each year to Washington than it receives in federal dollars – a far more extreme "balance of payments" shortfall than any other state," said a statement from Governor Cuomo's office.

Cuomo also said he would launch a "repeal-and-replace" strategy and explore the possibility of a "major shift" in the structure of state tax policy.

On January 17, 2018, the New York State Department of Taxation and Finance submitted a preliminary report outlining possible areas for for aggressive state tax reform, including various options for reducing the state's reliance on the Personal Income Tax and adopting an employer compensation expense tax, including the possibility of a voluntary employer opt-in system. The report also proposed measures to promote an increase in charitable giving from New Yorkers and the introduction of a new tax on unincorporated businesses.

"The State will use this blueprint as a foundation to work with experts, the Legislature, employers, taxpayers, and other stakeholders to develop and implement necessary changes to the New York tax code," said Governor Cuomo's office.

TAGS: court | Finance | tax | business | law | legislation | United States | tax reform | Tax

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