A federal judge on Monday dismissed a lawsuit from multiple states alleging that the 2017 Tax Cuts and Jobs Acts’ (TCJA) cap on deductions for state and local taxes is unconstitutional.
District Court Judge Paul Oetken ruled that the states had failed to show that the “SALT cap” exceeded Congress’ powers. Oetken wrote that the states failed to plausibly allege that the cap, more so than any other major federal initiative, “meaningfully constrains” the states’ decision-making processes.
The “SALT cap” places an upper limit of $10,000 on the amount a taxpayer may deduct from their federally taxable income to offset the sums they paid toward certain state and local taxes.
The lawsuit, brought by Connecticut, Maryland, New Jersey and New York, claimed that the ceiling has fundamentally altered the tax landscape. For example, New York predicts that its taxpayers will see their federal tax bills rise and will “end up paying a total of $121 billion more into the federal coffers between 2018 and 2025 then they would have paid absent the cap.”
Moreover, the suit alleged that Republican lawmakers “intended” this impact in an effort to “coerce a handful of States with relatively high taxpayer-funded public investments” to change their tax policies.
The court concluded it has no basis for ruling that the SALT cap is unconstitutionally coercive.