It was always a long-shot, but a quixotic lawsuit by four northeastern states to squelch the Trump tax law’s cap on state and local tax deductions is getting undermined by a repetitive drip of strong economic data.
New York, Connecticut, Maryland and New Jersey will get their first hearing in June on a last-gasp attempt to kill one of the most controversial provisions of the 2017 tax law. To do so, their attorneys general are relying on early-1900s news clippings and Civil War-era congressional debate over whether to even have an income tax.
The case, being heard in U.S. District Court in New York, is a mostly forgotten bid started last July to nullify the $10,000 cap on the amount of state and local income and property taxes that Americans can deduct from their federal taxes.
The four states, which all have high such taxes, claim the overhaul, a key accomplishment of President Donald Trump, trampled on their right to govern their own finances and violated constitutional protections against unequal treatment under the law, among other arguments.
To make their case, they’ve drawn on writings of the Founding Fathers, transcripts from congressional debates in the 1860s on the original SALT deduction, and 100-year-old newspaper articles describing lawmakers’ thoughts during the ratification of the 16th Amendment, which codified the income tax into the Constitution.
Yet evidence for the the primary complaint -- that the SALT cap would devastate state finances by lowering property values and causing people to move elsewhere --is weakening by the day.
In the tax filing season that just ended, New York State saw revenue rise $3.7 billion in April from a year earlier. New Jersey also reported an increase. It’s unclear if the revenues would have increased even more were it not for the SALT cap. And the feared exodus from high-tax states has not materialized, with reports that migration was lower than a decade ago.
The states’ arguments are a long-shot, say attorneys not associated with the case.
“I don’t think they’re going to win. I’d love for them to win. It would help me as a blue-state taxpayer. But they’re not going to win,” said Timothy Noonan, a tax attorney for Hodgson Russ who works in New York City and Buffalo.
Republicans in Congress approved the SALT cap to raise federal revenue that could be used for tax cuts elsewhere. The cap hit higher-tax states especially hard, and it wasn’t lost on Democrats that those were their states.