States sue over federal cap on tax deductions

Four Democratic-led Northeastern states sued the Trump administration to invalidate the new $10,000 cap on the federal tax deduction for state and local taxes. New York,​ New Jersey, Connecticut and Maryland claim the sweeping 2017 federal tax law "targeted" the states and overturned more than 150 years of precedent. The state and local tax deduction is essential to prevent federal tax powers from interfering with constitutionally guaranteed state rights, according to the lawsuit. The tax law resulted from a "hyper-partisan and rushed process" that will disproportionately harm taxpayers in the four states, New York Attorney General Barbara Underwood said in a statement. Ms. Underwood said a state analysis found that the cap will increase New Yorkers' federal taxes by $14.3 billion in 2018 alone and another $121 billion between 2019 and 2025. According to the complaint, filed Tuesday in Manhattan federal court, the new cap on the so-called SALT deduction will make it more difficult for the four states to maintain their taxation and fiscal policies, thus "hobbling their sovereign authority to make policy decisions without federal interference." The case is State of New York, 1:18-cv-06427, U.S. District Court for the Southern District of New York (Manhattan). (More: Homeowners looking to dodge property tax caps turn to Alaskan trusts)