4 states sue federal government over property tax changes

A new cap on state and local tax deductions will decrease home values and harm the broader economy in many states, says one official

By Ryan Smith

17 Jul 2018

Four states are suing the federal government over the Trump administration’s tax overhaul.

Specifically, the states – New York, Maryland, New Jersey and Connecticut – are suing the federal government over changes to property tax laws.

The new federal tax regulations drastically reduced the state and local tax (SALT) deduction, capping it at $10,000. The states’ lawsuit claims that the cap interferes with states’ rights to make their own fiscal decisions and will disproportionately harm taxpayers in those states.

In New York alone, the new cap is expected to increase residents’ federal taxes by $14.3 billion in 2018 and an additional $121 billion between 2019 and 2025.

Every previous federal income tax law provided for a deduction for all or a significant portion of state and local taxes. The SALT cap eliminates a large part of that deduction, which the lawsuit claims interferes with the states’ authority.

“As set forth in the complaint, the law flies in the face of centuries of precedent, which establishes constitutional limits on the federal government’s ability to use its tax power to interfere with the sovereign authority of the states,” the New York Attorney General’s Office said.

The New York Attorney General’s Office also claimed that the SALT cap would both the real estate market and the broader economy in many states.

“This new, drastic curtailment of the SALT deduction has both the purpose and effect of harming New York, other similarly situated states, and their residents,” the office said in a statement. “Among other things, the new cap will depress home prices, spending, and business sales, and result in slower growth for the New York economy and fewer jobs.”

“This cap is unconstitutional – going well beyond settled limits on federal power to impose 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,” said New York Attorney General Barbara D. Underwood. “We will not allow partisans in Washington to hurt people or interfere with our polices. We’ve filed suit against this unconstitutional attack on New York and our state’s fundamental rights –because we won’t stand by and let Washington pick the pockets of New Yorkers.”