A gavel and balance

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4 States Sue Federal Gov’t Over Property Tax Overhaul

July 19, 2018

New York, Connecticut, Maryland, and New Jersey lawmakers are suing the federal government over a tax reform bill that put a cap of $10,000 on certain state and local tax deductions, including property taxes. Several states—such as these four—have state and local taxes that can far exceed $10,000.

The states claim that the cap on certain local and state deductions (commonly referred to as SALT deductions) is unconstitutional. They’re asking a federal court to overturn it.

“The new cap on the SALT deduction is unprecedented, unlawful, and will cause significant and disproportionate injury to [these states] and their residents,” the lawsuit reads.

President Donald Trump signed the Tax Cuts and Job Act into law late last year. Officials of these four states argue that the tax overhaul and caps in the legislation are disproportionately harmful to their residents. The governors and attorneys general are arguing that such caps on local and state tax deductions will significantly increase the taxes for their residents.

For example, New York says the cap will raise New York residents’ federal taxes by $14.3 billion in 2018. The cap will then rise by an additional $121 billion between 2019 and 2025.

The tax law in Maryland could increase taxes for more than half a million residents, who stand to lose $6.5 billion in SALT deductions, or an average of $11,800 per taxpayer, says Brian Frosh, Maryland’s attorney general.

In Connecticut, taxpayers could lose up to $10.3 billion in SALT deductions this year. New Jersey has not released a specific number on the potential impact of the tax bill.

“Homes are the most valuable assets many homeowners possess,” the states argue in the lawsuit. “With depressed home prices, many homeowners will lose the equity on which they depend to finance retirement, school tuition, and other investments. Homeowners will also have less to spend on goods and services, which, in turn, will lead to decreased business sales, lower the Plaintiff States’ revenue, and curtail their economic growth.”

Read the full lawsuit here.