The United States Supreme Court has rejected a Democrat challenge to President Donald Trump’s 2017 tax cut law.
The case was an appeal from a number of Democrat-run states that sought to challenge the law signed by Trump because it capped local taxes that can be deducted from federal taxable income.
The group of high tax states losing the appeal include New York, Connecticut, New Jersey, and Maryland.
They were seeking to strike down a portion of the tax law known as the “SALT cap.”
“Congress’s taxing authority (as set forth in Article I, Section 8, and the Sixteenth Amendment) is cabined by the structural requirements of federalism, which prevent the federal government from directly interfering with the States’ ability to generate revenue to sustain their operations,” the states argued.
“The long history of federal income taxation demonstrates that Congress and the States equally understood that a deduction for all or nearly all state and local property and income taxes was constitutionally required to preserve state sovereign taxing authority.”
The current SALT cap is set to expire after 2025.
“The current Democrat-controlled House passed a bill in 2021 that would temporarily raise the cap to $80,000 until 2031, when it would go back to $10,000,” according to Fox News.
“The Senate has yet to take action on the bill, although a separate plan in the Senate led by Sen. Bernie Sanders, I-Vt., would cap the tax break by income, making it unlimited for individuals earning about $400,000 and phasing it down above that amount.
“Republicans have criticized the bill, saying it would disproportionately benefit ultra-wealthy Americans in blue states.”
In fact, unlike most debates in Congress, this one doesn’t actually pit red states against blue states.
Rather, it pits the interests of wealthy blue districts against less wealthy ones. That’s why liberals who care about inequality and systemic racism should be willing to let go of the deduction.
Better known by its acronym, SALT, the deduction allows taxpayers to subtract their local and state tax bills from their income and reduces the amount that they pay in federal taxes.
The 2017 Tax Cuts and Jobs Act signed by former President Donald Trump limited that deduction to $10,000. Trump’s motives weren’t egalitarian — he imposed the cap to help offset the costs of the other tax cuts in the package, tax cuts that went primarily to the wealthy and large corporations.
Many Democrats saw that move as a partisan financial hit aimed at blue states, and many now want to eliminate the limit.
But while Trump may have done the right thing for the wrong reason, lifting the cap now would be doing the wrong thing, full stop. Here’s why.
Property taxes are a large non-federal tax bill for many American homeowners. And the largest benefits of the deduction go to homeowners with the highest property taxes: residents of middle-class and wealthy communities that impose higher taxes to fund local priorities like better schools.
Consequently, places that can afford those higher taxes end up with better schools. When the unlimited SALT deduction was in place, the federal government essentially gave up being paid taxes by the homeowners in wealthy neighborhoods so that those homeowners could fund those better schools.
Many liberals are beneficiaries of this system. Many take out large mortgages to send their children to the public schools funded by those high property taxes. New York Democratic Rep. Tom Suozzi, who represents a wealthy part of Long Island, argued that Congress should repeal the state and local tax deduction limits because “we built a whole system around it.”