Jul 18, 2018

Go deeper: 4 blue states are suing Trump over the new tax law

Photo: Tom Williams/CQ Roll Call

Four northeastern states filed a federal complaint Wednesday about the cap on state and local tax deductions in the new tax bill, Forbes reports.

The bottom line: Connecticut, Maryland, New Jersey, and New York claim the cap will raise tax liability for millions of taxpayers. Because people living in these states pay high state and local tax rates, if they are no longer allowed to deduct as much money off their federal taxes, they may consider living elsewhere to avoid that tax burden.

The details:
  • Before the Tax Cuts and Jobs Act, there were no specific limitations on the amount of itemized deductions for state and local taxes.
  • Now, the amount taxpayers may claim on Schedule A for all state and local sales and income and property taxes combined may not exceed $10,000, or $5,000 for married taxpayers filing separately. That means individuals who pay high state and local tax can only deduct $10,000 from their federal tax.
  • In the past, only 30% of taxpayers decided to file itemized deductions instead of filing standard tax deductions, per the Internal Revenue Service. High-income households are more likely to itemize because they have more personal property.
The lawsuit
  • The states are suing the U.S. as well as Treasury Secretary Steven Mnuchin, IRS acting Commissioner David Kautter, the U.S. Treasury, and the IRS.
  • The plaintiffs argue the state and local tax cap increases the federal tax burden on taxpayers in targeted states.
  • The states also claim they will not be able to make policy decisions without federal interference, which will make it harder for them to maintain their taxation and fiscal policies — a direct violation of the Sixteenth Amendment.
  • Essentially, the states and several interest groups argue the new state and local tax cap could artificially depress home values.
  • The New York State Department of Taxation and Finance revealed that the cap will increase New Yorkers' federal taxes by $14.3 billion in 2018, and by $121 billion between 2019 and 2025, per a statement from New York Attorney General Barbara Underwood.

What to watch: The case will come down to interpretation of whether the deduction is a benefit or a constitutional right, Adam Beckerink, Tax partner at Morgan, Lewis & Bockius LLP told Forbes. "Many will be watching to see if other states join the suit and if the federal government will increase its scrutiny of the ‘workaround’ processes that were previously passed by the States."

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Coronavirus dashboard

Illustration: Eniola Odetunde/Axios

  1. Global: Total confirmed cases as of 9 p.m. ET: 1,513,358 — Total deaths: 88,415 — Total recoveries: 329,329Map.
  2. U.S.: Total confirmed cases as of 9 p.m. ET: 430,376 — Total deaths: 14,739 — Total recoveries: 23,707Map.
  3. Federal government latest: Top Trump administration officials had been developing a plan to give cloth masks to huge numbers of Americans, but the idea lost traction amid heavy internal skepticism.
  4. States latest: New York has reported more cases than the most-affected countries in Europe. Chicago's Cook County jail is largest-known source of coronavirus in U.S.
  5. Business: One-third of U.S. jobs are at risk of disappearing, mostly affecting low-income workers.
  6. World: WHO Director-General Tedros Adhanom Ghebreyesus urged countries to put politics aside "if you don’t want to have many more body bags.”
  7. Environment: COVID-19 is underscoring the connection between air pollution and dire outcomes from respiratory diseases.
  8. Tech: A new report recommends stimulus spending to help close the digital divide revealed by social distancing.
  9. What should I do? Pets, moving and personal healthAnswers about the virus from Axios expertsWhat to know about social distancingQ&A: Minimizing your coronavirus risk.
  10. Other resources: CDC on how to avoid the virus, what to do if you get it.

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U.S. coronavirus updates: New York tops previous day's record death toll

Data: The Center for Systems Science and Engineering at Johns Hopkins; Map: Andrew Witherspoon/Axios

New York's death toll surged to its highest one-day total on Wednesday — beating the previous day's record. 779 people died in the state in 24 hours. The state has reported more cases than the most-affected countries in Europe.

Why it matters: Public health officials have warned this would be a particularly deadly week for America, even as New York began to see declining trends of hospitalizations and ICU admissions.

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New York City's skyline on a smoggy day in May 2019. Photo: Drew Angerer/Getty Images

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