U.S. Judge Upholds Trump’s Tax Cap on ‘SALT’ deductions
United States: On Monday, a U.S Judge – Paul Oetken upheld Trump’s tax cap on state and local taxes (SALT) deductions.
SALT is a famous tax break for filers in high-tax states as part of the 2017 tax overhaul.
The cap allows married taxpayers filing jointly and individuals who itemize deductions to deduct up to $10,000 annually for taxes on SALT, property, and sales. Married people filing separately, have a cap of $5,000.
New York, Connecticut, New Jersey, and Maryland sued the Treasury Secretary Steven Mnuchin, the Treasury Department, and the IRS, among others, in July 2018.
The four states challenged the new $10,000 tax cap terming it as an unconstitutional assault on states’ sovereign choices.
They opposed the cap saying it would depress home prices, spending, jobs, and economic growth. It would be difficult for people to pay for hospitals, schools, police, and road and bridge constructions and maintenance.
New York says the average SALT deduction 3.3 million residents claimed was $21,943 in 2015. These are residents who itemized their deductions of the federal returns.
However, in his judgment, he ruled that the four states failed to show that the $10,000 SALT cap exceeded Congress’ constitutional power to impose income taxes.
He also found no basis to conclude that the SALT cap was an effort to coerce them into lowering their taxes and cutting services – in line with the Fed’s own policy preferences.
In his ruling, Oetken wrote that the states failed to show that the SALT cap puts them to the forced choice of lowering tax rates or facing budgetary disaster.
United States Court’s decision is a victory for Trump
Trump used the cap to help pay for other parts of his $1.5 trillion tax overhaul. The overhaul included cutting taxes for wealthy Americans and reducing the corporate tax rate.
The cap on SALT which had been unlimited was one of the provisions intended to offset the cost of trillion dollars in tax cuts included in the 2017 law.
In February, Trump administration estimated that the cap would have left 10.9 million filers unable to deduct $323.1 billion in SALT from their 2018 returns.
The cap affects people in the Democratic states such as California and the four states mentioned earlier. Trump is a Republican, and Republicans controlled the Congress in 2017.
Some states proposed means to allow taxpayers to classify some tax payments as charitable contributions – which are not subject to the cap. However, the Treasury Department and IRS have warned against such workarounds.
Andrew Cuomo, the New York Governor, and a Democrat said the state might appeal. He faulted Trump for targeting blue states to pay for tax cuts for corporations and the rich. The governor said the SALT cap alone costs New Yorkers $15 billion a year.
Cuomo said the policy was unprecedented, punitive, unlawful, and politically motivated—and it must stop.
The Department of Justice in U.S did not respond immediately to the ruling.
