High-tax blue states sue Trump administration over cap on treasured deduction

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States sue over SALT deduction cap

New York congressman Lee Zeldin discusses why he did not vote for the GOP tax reform plan and states suing over a cap on state and local tax deductions.

A coalition of high-tax blue states is suing the federal government, claiming the Republican tax overhaul singles them out by capping treasured deductions.

The lawsuit from New York, New Jersey, Connecticut and Maryland amounted to their latest bid to fight the limit on state and local tax (SALT) deductions imposed by the GOP-authored tax plan.

"The federal government is hell-bent on using New York as a piggy bank to pay for corporate tax cuts and I will not stand for it," New York Gov. Andrew Cuomo, who is running for re-election and is considered a possible 2020 presidential candidate, said in a statement.

The tax law signed last year caps those SALT tax deductions at $10,000.

The deduction is especially popular in high-tax, Democratic states, where many homeowners will see big increases in their federal tax bill from the change. New York estimates that taxpayers will pay $14 billion more in 2018.

The lawsuit, filed Tuesday in the Southern District of New York, was dismissed as a long-shot political stunt by supporters of the new tax code.

But the challenge alleges that lawmakers crafted the new tax code to target left-leaning states. It claims the move interferes with their constitutionally granted taxing authority.

“This cap is unconstitutional - going well beyond settled limits on federal power to impose an income tax,” New York Attorney General Barbara Underwood said in a statement.

The suit names the Internal Revenue Service and the U.S. Treasury Department as defendants. Cuomo first announced plans to sue seven months ago and was quickly joined by leaders from the other states.

While the new law contained sweeping tax rate cuts for businesses and individuals, taxpayers in high-tax states like those in the Northeast are expected to take a hit from the SALT change. Some Republicans from those states joined Democrats last year in voicing concern about that change during the drafting of the bill.

But critics dismissed the lawsuit as a political ploy that’s not likely to prevail in the courts.

When it comes to taxing Americans, “Congress can really do what it wants,” said Tax Foundation executive vice president Joseph Bishop-Henchman. “It’s really not much of a case.”

Republicans said the plaintiff states should focus on reducing the cost of state taxes instead of taking on Washington.

“New York cannot sue its way out of high taxes,” said New York state Senate Leader John Flanagan, R-Long Island.

The Associated Press contributed to this report.