A Black Friday shopper films herself with her smartphone while shopping for handbags at a Furla store on Fifth Avenue in New York last week. (AP Photo / Mary Altaffer)
MANHATTAN (CN) – The Second Circuit appeared unwilling on Thursday to step into the challenge of a Trump-imposed cap on how much state and local taxes taxpayers can deduct from their total taxable income.
In high-tax countries like New York and New Jersey, residents could historically offset this burden by deducting all state and local property and personal wealth taxes from their taxable income, in addition to any state and local income taxes or all state and local sales taxes. However, President Donald Trump revoked these privileges shortly before Christmas 2017 when he signed the Republican Tax Act, which set an upper limit of $ 10,000 on so-called SALT deductions, short for state and local taxes, while largely reducing taxes for companies. This year, all 10 states with the highest taxes in the Senate were represented by Democrats – with the exception of Bernie Sanders of Vermont, who is technically independent.
New York, which has the highest annual combined taxes per capita, led a team from other Democratic states to get an injunction against the cap. However, US District Judge Oetken dismissed the case last year because he had not made a claim.
Caroline Olsen, an assistant attorney general who represents the state challengers, pushed for a turnaround, telling an appellate body on Thursday that Trump’s $ 10,000 cap on SALT deductions is turning 150 years of consistent Congressional practice on its head.
“Congress has maintained the withdrawal through periods of war, heavy budget deficits and changing political parties, and has done so on the basis of an understanding that the withdrawal is necessary to protect the sovereign authority of states to determine how revenues are to be increased and how do you invest in your own residents and infrastructure, ”argued Olsen this morning during a 37-minute long-distance conference.
The US circuit judge Robert D. Sack quickly threw himself in. “Over the years Congress has been playing around with the trigger and this isn’t just another trigger game,” the Clinton-appointed judge asked.
“This is the first direct limit on the deduction,” replied Olson, “and it has constitutional significance as the deduction of the price is inherent in state and local taxes. It is undisputed that the limit on the deduction increases the cost of the state and the government Taxes increased, and they did so in a way that past tinkering and the random restrictions on deductions just didn’t do. They did not go over to the effective or marginal value of the deduction in the same way. ”
While the three-judge panel had reserved a decision on the appeal on Thursday, U.S. Circuit Judge Raymond Lohier said they could rely on the Supreme Court precedent.
“When it comes to taxes, the Supreme Court tells us we’ll go out of the way unless there is something explicit in the Constitution that prevents Congress and the executive from passing a plenary bill on taxation.” Obama commissioner recorded Thursday.
The states’ argument “seems to contradict what the Supreme Court has told us about the powers of Congress in relation to its power to collect and collect taxes under the Constitution,” Lohier said.
“It has told us that there is no limit to that power unless one is expressed in or emerged from the Constitution,” he added. “And that you have South Carolina versus Baker, in which the court rejected claims that Congress exceeded its constitutional authority over a very long-term federal tax exemption for interest earned.”
US Circuit Judges Lohier and Sack were inducted into the jury by US Circuit Judge Denny Chin, an Obama-appointed judge.
The government argued on appeal that Judge Oetken was right to dismiss, arguing that the SALT ceiling did not inappropriately grant plaintiff states special treatment or violate their equal sovereignty.
“Indeed, nothing in the Constitution, including unwritten principles of federalism, requires a salt deduction, let alone unlimited,” the government’s brief statement said.
New York Governor Andrew Cuomo has denounced the Trump administration for leading charges in a series of political and economic attacks on deeply democratic cities. “Trump is actively trying to kill New York City. It’s personal. I think it’s psychological, ”Cuomo said in September. “He passed SALT, which aimed only at tax reform in New York. it cost us $ 14 billion. “
In July, New York Democrat Charles Schumer, chairman of the Senate Minority, urged that state and local tax deduction caps be lifted in an upcoming coronavirus bailout package and urged Senate majority leader Mitch McConnell to “join the House and the join Senate Democrats, and get rid of that cap. ”
Schumer pledged that Senate Democrats would make it a priority to permanently end the withdrawal cap if they win a majority in 2021. “Here’s what I want to tell you, if I become majority leader, the first thing I will do is eliminate it forever,” he said. “It will be dead, gone, and buried.”
Control of this chamber will be determined by a runoff election for the two seats of the Senate in Georgia on January 5, 2021.