January 26, 2018

CT to join coalition in challenging tax reform constitutionality

Patricia Daddona
Patricia Daddona
Gov. Dannel P. Malloy

Connecticut, New York and New Jersey are joining nine other states within weeks to sue the Trump administration in federal court over the constitutionality of the new tax reform law.

Passed by Congress and signed by President Donald Trump in December, the Tax Cuts and Jobs Act of 2017 is a sweeping overhaul of the U.S. tax code.

As part of their legal strategy, the states plan to challenge a controversial provision of the tax law, which limits the amount individual taxpayers can deduct for state and local income taxes (SALT). Under the revised provision, taxpayers who itemize can now only deduct up to $10,000 in SALT, which impacts higher-cost states like Connecticut and New York.

On a conference call with the media, Gov. Dannel P. Malloy, New York Gov. Andrew Cuomo and New Jersey Gov. Phil Murphy announced their intention to form a multi-state coalition that will challenge the tax reform law in federal court.

Cuomo called the law "repugnant," saying the $10,000 limit on individual deductions is unfair.

"Twelve states are used as the financing mechanism for the tax cut for the rich in the rest of the country," Cuomo said. "There is a very strong argument that the bill is a fundamental violation of state's rights."

The 12 states, nine of which were not named, represent 12 percent of the nation's Gross Domestic Product, so the change to property and income taxes have the potential to undermine core services, Cuomo said.

Malloy noted that 483,790 Connecticut taxpayers use SALT deductions. The change in the new law will not only exacerbate the national debt, but will "take away coverage for health care and do other great damage," he said. "What is happening here is a frontal attack on the ability of our state to pay for education and other services our citizens receive."

Cuomo cited the Revenue Act of 1862 and the 1985 National League of Cities Resolution, noting the latter "is a fundamental statement of the historical right of state and local governments to raise revenues and of individuals not to be double taxed. This violates both principles clearly."

The 1862 statute states: "All other national state and local taxes shall first be deducted to determine a taxpayer's liability for the income tax," Cuomo said.

The impact of tax reform, Cuomo added, is "You chase out relatively high earners; you're less competitive because your taxes are now structurally higher than that in other states. The tax burden is not going to be reduced; it is going to be passed down to the middle class. [New York GOP lawmakers who approved the bill] fail by their own words, their own logic."

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