The 2017 legislation placed a cap on deductions at $10,000 for state and local taxes (SALT). Democrats are often slammed for trying to increase taxes, but this particular deduction from federal taxes was very popular in blue states — it gave those states the ability to increase their own taxes to prioritize their own citizens’ wellbeing over everyone. It’s a particularly Republican thing to do, but the Republicans are the ones who enacted the deductions cap.
It’s almost as if they don’t really have states’ rights at heart, like they always say they do. In this way, Republicans can say they’ve reduced taxes — federal taxes — even though the obvious consequence is an increase in state and local taxes to balance out the budget.
According to New York State Governor Andrew Cuomo, the SALT tax cap is “unprecedented, unlawful, punitive and politically motivated. We disagree with the court’s decision and are evaluating all options including appeal.”
The states that opposed the new bill were New York, New Jersey, Connecticut, and Maryland. Those states filed a lawsuit against Treasury Secretary Steven Mnuchin and the Internal Revenue Service. They wrote that the bill was “an unconstitutional assault on states’ sovereign choices.”
Judge J. Paul Oetken did not agree, and subsequently dismissed the suit. He explained, “The cap, like any federal tax provision, will affect some taxpayers more than others and, by extension, will affect some states more than others. But the cap, again like every other feature of the federal Tax Code, is a part of the landscape of federal law within which states make their decisions as to how they will exercise their own sovereign tax powers.”
Staff at the Government Finance Officers Association said that SALT is all about a working partnership between different governing entities in local, state, or federal levels. The SALT laws have been successful for over a century, they said, and “the deduction is fundamental to the way states and localities budget for and provide critical public service, and a cornerstone of the U.S. system of fiscal federalism.”
Based on a 1964 extension of the Revenue Act of 1913, people can deduct property taxes, income taxes, and sales taxes. These deductions prevent taxpayers from paying tax on income more than once — which is generally a favorable thing from the perspective of most American taxpayers, who like to keep a firm hold on their money.
Democrats believe that the deductions on property taxes and sales taxes respectively promote home ownership and spending, thereby stimulating economic growth year by year. By placing a cap on the deductions, the economy might not see as much movement.