Posted on 07/19/2018 7:52:26 AM PDT by SeekAndFind
The Constitution Does not Mandate Deduction of State Taxes.
Four high-tax blue states — New York, Connecticut, Maryland, and New Jersey — have filed suit against the federal government over the recent tax reform. Specifically, they object to its limitation on the deduction for state and local taxes (SALT).
Under federal tax law, filers are allowed to deduct property taxes (the local part) and either state income or sales taxes. But under the Tax Cut and Jobs Act (TCJA), the SALT deduction is now capped at $10,000. This deduction had been particularly valuable in high-tax, high-house-price states such as California and the four now suing the federal government.
Republicans limited the deduction for two reasons. First, doing so helped to offset some of the lost tax revenue from lower rates. And second, the deduction distorts the economy, acting as a subsidy for high-tax (and, yes, Democratic-leaning) states. When a state raises its taxes, the federal government ends up assuming part of the burden, because residents are able to deduct their higher payments from their federal taxable income.
Unsurprisingly, high-tax blue states have been fighting tooth and nail against this reform. This latest argument might be the silliest yet, as it makes no sense economically or legally. The four states claim that limiting the SALT deduction violates both the Tenth and 16th Amendments, as well as Congress’s Article I taxing powers. The Tenth Amendment reserves unspecified powers to the states, while the 16th Amendment provides the federal government a wider ability to charge income taxes. In Article I, meanwhile, Congress is given certain taxing powers but limited in what it can force on states.
The four states are claiming, at the most basic level, that the TCJA damages their ability to levy high taxes on their residents by limiting the federal deductibility of those taxes, thereby infringing on rights reserved for the states. Unfortunately, the lawsuit makes no sense on legal or economic grounds. It is purely pandering to Trump-hating voters.
On the legal side, the TCJA in no way limits what taxes states may levy; it simply caps the deduction for those taxes. Nowhere does the Constitution mention tax deductions, and there is clear evidence against the idea that a SALT deduction has always been seen as constitutionally mandatory.
Federal payroll taxes for Social Security and Medicare are levied on workers’ total income, for example, with no deductions allowed for state (or even other federal) taxes. A similar argument could be made from the fact that only one of state income and sales taxes is deductible, or the fact that the alternative minimum tax (AMT) has long taken the SALT deduction away from certain taxpayers. Even the standard deduction would seem to be a problem for the states’ case, as filers using the standard deduction get no reduction in federal taxes when state taxes go up.
Indeed, if one takes the states at their word — that they are entitled to levy taxes first and the federal government may tax only the remainder — then the only logical conclusion would be that SALT should be a fully refundable credit, not simply a deduction.
On the economic side, high-tax states are worried that if residents don’t get to deduct their state and local taxes, they will complain more about the high tax burden their state and local politicians have imposed on them. However, the TCJA lowered the overall tax burden for about 95 percent of taxpayers. Residents of the suing states are somewhat more likely to receive a tax increase, but on average their taxes are still being cut. Taxpayers are more able to pay high state taxes after a federal tax cut, not less.
The Tax Policy Center estimated that 84 percent of the benefit of the SALT deduction before the TCJA went to households in the top 20 percent of income earners. Blue states that might be expected to favor a tax reform that increased the progressivity of the tax code (meaning it tilts the tax burden toward the rich) are instead busy inventing ways to preserve this deduction for their rich residents. This lawsuit has little merit other than to serve as a clear signal that political leaders in these states have joined the anti-Trump Resistance.
Their scheme to tax the crap out of Its citizenry and get the rest of us to subsidize it is over
That lawsuit is so obviously ridiculous that they’ll need a court of morons to match the 9th Circus to have any chance of winning.
Heh. Remember when we actually respected judges?
I see an easy solution here. Just have the Federal Courts take over the spending and taxing decisions of these four states. Reduce spending and reduce taxes. There, all better now.
Is there a requirement, constitutionally, that the Fed must allow deductions of any kind?
I don’t think so.
The original constitution only allowed income taxes if they were apportioned state by state, and then the states levied their people to come up with that amount of money.
Sounds like New York would do better to repeal the 16th amendment.
I was going to be sarcastic and suggest that maybe the judiciary will start printing up tax tables for the IRS. However,given the mindset of liberal judges I’ll bet they find one that will say Federal taxes passed by Congress must have judicial approval before becoming law.
True, but I'd be surprised if it doesn't get at least to 1st or 2nd base.
As sure as I am breathing some Federal Court will pronounce itself the power to regulate taxes, declare the Tax Reform to be unconstitutional, reinstate the prior law and throw our economy into chaos.
If the dems think that is a winning strategy, then I wish them luck.
It is a scheme! Poorly run dem states are hiding their own tax costs and passing them onto blue state workers.
I haven’t respected judges for more than 30 years. Not since I had a job that put me around them.
“Congress is not empowered to tax for those purposes which are within the exclusive province of the States.” Justice John Marshall, Gibbons v. Ogden, 1824.
"The smart crooks long ago figured out that getting themselves elected to federal office to make unconstitutional tax laws to fill their pockets is a much easier way to make a living than robbing banks." —me
"Federal career lawmakers probably laugh all the way to the bank to deposit bribes for putting loopholes for the rich and corporations in tax appropriations laws, Congress actually not having the express constitutional authority to make most appropriations laws where domestic policy is concerned. Such laws are based on stolen state powers and uniquely associated stolen state revenues." —me
The Gibbons v. Ogden excerpt above needs to be printed at the top of the new postcard sized federal tax return.
Note that the congressional record shows that constitutional lawmaker Rep. John Bingham had clarified that the Founding States had left the care of the people to the states, not the federal government.
”... the care of the property, the liberty, and the life of the citizen, under the solemn sanction of an oath imposed by your Federal Constitution, is in the States, and not in the Federal Government [emphases added].” —Rep. John Bingham, Congressional Globe, 1866. (See about middle of 3rd column.)
We need to get rid of the 16th and 17th Amendments.
The SALT deduction is not eliminated. The Feds adjusted the rate on a fed tax. They’re allowed to do that.
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