Albany’s Millionaire Tax Revolt

High-tax states sue to protect their richest taxpayers.

 
 

People walking around the reflection pond at the Empire State Plaza in downtown Albany.
People walking around the reflection pond at the Empire State Plaza in downtown Albany. PHOTO: GETTY IMAGES
 

The Republican tax bill is the law for 2018, but some progressives are mounting an insurrection against taxation without . . . loopholes for rich people. As a slogan it’s not the Boston Tea Party, but check out the revealing legal challenge from four states.

Last year’s Republican reform capped at $10,000 the state-and-local tax deduction, which allows filers to write off taxes paid to the denizens of Albany and other corruption-full zones. The previous unlimited deduction had allowed taxpayers to avoid the full pain of high state taxes, effectively subsidizing bigger government in high-tax states. New York and New Jersey in 2014 reaped more than 19% of the overall tax write-off, according to IRS statistics.

The deduction flows to a small subset of taxpayers who itemize and tend to be affluent. This is especially true now that Republicans have doubled the standard deduction and more filers will decline to itemize deductions. The $10,000 cap was a political compromise intended to ensure that some middle-class taxpayers don’t end up paying more.

But savor the irony that New York Governor Andrew Cuomo and others are standing up for millionaires: The Attorneys General of New York, New Jersey, Connecticut and Maryland this week filed a lawsuit in federal court in Manhattan claiming that this change in tax policy violates the Constitution. The plaintiffs assert that “the new cap disregards Congress’s hitherto unbroken respect for the States’ distinct and inviolable role in our federalist scheme.”

This is a sure legal loser, not least because tax reform merely rewrote the federal tax code. Congress didn’t touch a single state statute. The plaintiff AGs claim their states were somehow politically targeted, but the federal law applies to all 50 states uniformly.

States are always free to change their own state laws in response to the federal law, and several have. Michigan adjusted its law to make sure the state wouldn’t collect more money simply because of the change in federal deductions. New York has chosen to concoct a convoluted payroll tax-deduction scheme that the IRS is suggesting won’t pass legal muster.

The plaintiffs also claim the feds are “commandeering” state resources and forcing New York and Connecticut to change fiscal policy. That’s the point that tripped up ObamaCare’s Medicaid expansion. But the Supreme Court found expansion coercive because the government threatened to revoke Medicaid funding for states that didn’t expand. Tax reform forces states to do nothing. The reform is less coercive than federal statutes that deny money to states unless they follow certain rules.

The biggest hoot is that the plaintiffs claim tax reform passed “with a bare congressional majority of one party,” as if narrow majorities are unconstitutional. That would have killed ObamaCare, which passed without a vote to spare in the Senate.

For all the talk about how progressive states need high taxes for roads and free college, note that they are dumping taxpayer cash into lawsuits that are essentially campaign documents. These states apparently have money to burn.

Appeared in the July 19, 2018, print edition.

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