New York and three other high-tax states announced Tuesday that they will appeal a federal court ruling that struck down their creative attempts to frustrate the 2017 GOP tax overhaul.
The states — including Maryland, Connecticut and New Jersey — had sought to come up with workarounds that would let their wealthiest taxpayers continue to claim a deduction on federal forms for taxes paid to their states and localities. But the IRS said their workarounds were a sham, and a federal court sided with the tax agency.
New York, which says its taxpayers stand to owe $100 billion more to Uncle Sam “in the years ahead” because of the changes, said it won’t go down without a fight.
“New York is already the nation’s leader in sending more tax dollars to Washington than we get back every year, and we will not allow this administration to pick the pockets of hardworking New Yorkers to fund tax cuts for corporations and send even more money to red states,” Gov. Andrew Cuomo said, calling the federal tax policy “retribution politics.”
His anger is aimed at the 2017 tax law passed by the GOP-controlled Congress and signed by President Trump, without a single Democrat in support.
The law sought to cut the corporate income tax rate, and included personal tax rat reductions for all incomes. The plan also expanded the standard deduction, making more money tax-free for every taxpayer.
But to offset some of the tax cuts’ costs, Republicans closed down a number of tax breaks, and put caps on others.
One of the biggest changes was to impose a $10,000 limit per household on the total deduction taxpayers could claim on their federal forms from paid state and local taxes, known in federal budgeting as SALT.
The changes hit particularly hard in high-tax states, usually Democrat-run, in the country’s Northeast.
Republicans said having unlimited write-offs for SALT meant federal taxpayers were effectively subsidizing the grandiose tax-and-spend plans of those states.
New York thought it had hit on a workaround. It said taxpayers who would be snared by the $10,000 limit could make a donation to a state-approved charity to offset paying their local tax. They would then claim the charitable write-off on their federal forms.
But the Treasury Department wrote new rules saying that any charitable deductions used to offset local taxes could not also be used as a federal deduction.
Judge J. Paul Oetken, an Obama appointee to the court for the Southern District of New York, upheld the regulations in a September ruling.
He said Congress has clear powers to write national tax laws, and that includes setting income levels and deduction caps.
Democrats tried to overturn the new IRS rules in a Senate vote last month but were defeated, 52-43.
Republicans have chided Democrats for the effort, pointing out the incongruity of pushing for a tax break that experts say chiefly benefits the wealthy, at a time when the party’s presidential candidates are sparring over ways to sock the rich with higher taxes.
Even one Democrat during the Senate debate, while criticizing the 2017 tax bill, noted the irony of his party pushing for the SALT changes.
“The vast majority of the benefits of repealing the SALT cap would go to high-income Americans,” said Sen. Michael Bennet, Colorado Democrat. He voted with the GOP to sustain the new IRS rules.
• Stephen Dinan can be reached at sdinan@washingtontimes.com.
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