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Tax Code Rollback?

In the Tax Cuts and Jobs Act signed by President Trump in December 2017, there are various deductions that Americans filing taxes can claim for various reasons.  One such deduction is the State and Local Taxes Deduction (SALT).  Before the Tax Cuts and Jobs Act was signed, taxpayers were able to deduct the full amount of their state and local income taxes from their federal income tax bill.  The purpose of this deduction is to allow taxpayers to deduct that income from their federal income tax bill to avoid double taxation of that same income.

When the Tax Cuts and Jobs Act was signed, the amount of local and state income taxes that taxpayers can deduct was reduced from the full amount of non-federal income taxes paid to $10,000.  The main objections came from states with higher state and local income taxes.  These states also tended to be against the signing of the Tax Cuts and Jobs Act.  Some states are against this tax reform bill because it only allows taxpayers to deduct $10,000, which is a fraction of the state and local income tax bill in some states.

As a result of the $10,000 SALT Deduction Cap, four states filed a lawsuit in July 2018 in the U.S. District Court in Manhattan.  According to the Empire Center, the states that filed this lawsuit are New York, New Jersey, Connecticut, and Maryland.  One thing that all of these states have in common is their high state and local income tax brackets.  The basis behind this lawsuit was that Congress did not have the power to impose the $10,000 SALT Deduction Cap.  Governor Andrew Cuomo (D-NY) argued that the SALT Deduction Cap costs New York State residents $15 billion each year, according to the Empire Center.  However, this statement was debunked by U.S. District Judge Paul Oetken, who presided over this case.  Judge Oetken corrected Governor Cuomo’s statement, saying that the $15 billion is the value of lost SALT Deductions rather than an annual cost to New York State residents.

These four states also argued that the SALT Deduction Cap was used as a tool to force high tax states to change and review their tax codes.  With the numerous tax deductions and codes, it was difficult for these states to prove that the SALT Deduction Cap directly harmed taxpayers within those states.  If those states were able to prove that the SALT Deduction Cap directly harmed taxpayers, they would have won the lawsuit and the SALT Deduction Cap would have been overturned.  However, Judge Oetken disregarded those arguments and dismissed the lawsuit because those states failed to prove that the SALT Deduction Cap, over any other tax deduction, code or form of monetary or fiscal policy, directly harmed taxpayers.

The fight to abolish the SALT Deduction Cap was not won in U.S. District Court.  However, this is not stopping opponents of this tax cap from attempting to abolish it.  Senate Minority Leader Chuck Schumer (D-NY) was urging the Senate to hear arguments for the SALT Deduction Cap rollback, according to the Times Union.  To get the SALT Deduction Cap on the Senate floor, Senator Schumer would have to get the approval of Senate Majority Leader Mitch McConnell (R-KY).  However, there is a loophole to this process.  All Senator Schumer needs to do is get 51 votes rather than the 60 votes needed to overcome a filibuster.  In a Republican-controlled Senate, putting the SALT Deduction Cap rollback, a rollback on the majority Republican supported tax code, on the Senate floor would be a near-impossible task.