STUMP » Articles » Taxing Tuesday: Let's Sue the Feds! » 24 July 2018, 06:27

Where Stu & MP spout off about everything.

Taxing Tuesday: Let's Sue the Feds!  

by

24 July 2018, 06:27

I hope these lawsuits fail.

(dammit, my tax dollars are going to this)

Four states sue Trump administration over tax law

Four states on Tuesday sued the Trump administration over the $1.5 trillion tax-cut law, saying a new cap on a state and local tax deduction is an illegal infringement on states’ rights.

New York, Connecticut, Maryland and New Jersey are listed as plaintiffs in the lawsuit filed Tuesday in U.S. District Court for the Southern District of New York.

“The federal government is hellbent on using New York as a piggy bank to pay for corporate tax cuts and I will not stand for it,” said New York Gov. Andrew Cuomo. “We will fight back at every turn against President Trump and the federal government’s partisan assault on to protect the people of New York.”

The lawsuit argues that the new tax law infringes on the states’ authority to make sovereign decisions on local investments, and that lawmakers have admitted that the new cap was intended in part to force states to reduce their spending.

“This court should invalidate this unconstitutional assault on the states’ sovereign choices,” the lawsuit says.

Where was the Mason-Dixon Line, again? States’ Rights?!

From National Review: Four Blue States Protest Tax Reform with a Frivolous Lawsuit

The Constitution doesn’t mandate a deduction for state taxes.

Four high-tax blue states — New York, Connecticut, Maryland, and New Jersey — have filed suit against the federal government over the recent tax reform. Specifically, they object to its limitation on the deduction for state and local taxes (SALT).
….
Unsurprisingly, high-tax blue states have been fighting tooth and nail against this reform. This latest argument might be the silliest yet, as it makes no sense economically or legally. The four states claim that limiting the SALT deduction violates both the Tenth and 16th Amendments, as well as Congress’s Article I taxing powers. The Tenth Amendment reserves unspecified powers to the states, while the 16th Amendment provides the federal government a wider ability to charge income taxes. In Article I, meanwhile, Congress is given certain taxing powers but limited in what it can force on states.

The four states are claiming, at the most basic level, that the TCJA damages their ability to levy high taxes on their residents by limiting the federal deductibility of those taxes, thereby infringing on rights reserved for the states. Unfortunately, the lawsuit makes no sense on legal or economic grounds. It is purely pandering to Trump-hating voters.

On the legal side, the TCJA in no way limits what taxes states may levy; it simply caps the deduction for those taxes. Nowhere does the Constitution mention tax deductions, and there is clear evidence against the idea that a SALT deduction has always been seen as constitutionally mandatory.

And it goes through the examples: federal payroll taxes (no state tax deduction), alternative minimum tax (which I’ve been dinged with once), and the existence of the standard deduction even before the TCJA.

On the economic side, high-tax states are worried that if residents don’t get to deduct their state and local taxes, they will complain more about the high tax burden their state and local politicians have imposed on them. However, the TCJA lowered the overall tax burden for about 95 percent of taxpayers. Residents of the suing states are somewhat more likely to receive a tax increase, but on average their taxes are still being cut. Taxpayers are more able to pay high state taxes after a federal tax cut, not less.

Yes, I did the math for myself, and even with the SALT cap, it looks like I have a tax cut – less than those at my income level in a low-tax state, but it’s my own fault I live in New York and work in Connecticut.

The main thing I object to is that my NY and CT state taxes are being wasted on this shit. I hope this just gets thrown out of the first court they go to and they give up (after Election Day this year, of course, because I know what this theater is about. And it’s pointless, because there are so many Dem pols representing these states in Congress to begin with. Are they afraid Democratic voters will switch to Republicans absent this theater? Perhaps. But I would rather they spend DNC money prosecuting these cases.)

AN OFFICIAL INTERLUDE

Here is the press release from the NY government:

A.G. Underwood And Gov. Cuomo Announce Lawsuit To Protect New York Taxpayers From Drastic Cut In State And Local Tax Deduction

Drastically Cutting SALT Deduction Will Cost New Yorkers $14.3 Billion in 2018 Alone

Lawsuit Details How New Federal Tax Law Targets – and Will Disproportionately Harm – NY and Similar States, While Interfering with States’ Rights to Make Own Fiscal Decisions

NY Joined by CT, MD, NJ in Suit Filed Today in Southern District of NY

…..
“The federal government is hellbent on using New York as a piggy bank to pay for corporate tax cuts and I will not stand for it,” said Governor Cuomo. “Today I’m proud to announce that New York is the first state in the nation to take legal action against Trump’s tax plan that benefits the 1% at the expense of middle-class families. We will fight back at every turn against President Trump and the federal government’s partisan assault on to protect the people of New York.”


[alternate Cuomo]: How dare the feds use rich New Yorkers as their piggy bank!!!!

That’s our piggy bank!!!!

ALTERNATIVE MINIMUM TAX

Hey guys, when did you sue against the AMT (alternative minimum tax)? I got shaken down by that one, some years back…. haven’t seen y’all go to bat over that. Rich New Yorkers got hit by that a lot more than rich Texans, I’ll tell you whut.

Tax Policy Center on who pays the AMT, and the effects:

Q.Who pays the AMT?

A.The individual alternative minimum tax (AMT) primarily affects well-off households, but not those with the very highest incomes. It is also more likely to hit taxpayers with large families, those who are married, and those who live in high-tax states.

…..
Taxpayers can deduct state and local taxes under the regular income tax but not the AMT. Thus, in 2017 taxpayers in high-tax states are more than twice as likely to be on the AMT as those in low-tax states.

That sounds a bit more severe than a $10K cap.

It essentially started out in 1969, though it has undergone many changes since then.

According to the Tax Foundation:

When top marginal rates rise, this disproportionately impacts states filled with high earners, but New York didn’t threaten to sue when the top rate rose under President Obama. The creation of the alternative minimum tax hit these states’ residents particularly hard, but in the nearly fifty years since its creation, no state has filed an equal protection lawsuit to abolish it. What about when capital gains rates rise? There’s a lot more capital gains income in New York than there is in, say, Wyoming—yet no lawsuits.

Just spitballin’ here: the states didn’t sue in those situations… because they knew they would lose.

And the Democrats in charge weren’t looking to cause trouble for Obama, obviously, but again — I think it’s simpler. They knew they’d lose. The states can’t dictate federal tax law.

Good news, though. Evidently, under the TCJA, fewer people should be paying the AMT:

On December 22, 2017, President Trump signed the Tax Cuts and Jobs Act. It keeps the AMT, but raises the exemption and phaseout levels from 2018 through 2025. As a result, it will affect 200,000 tax filers instead of the 5 million affected in 2017. The bill includes an automatic cost of living adjustment.

Should be “fun” to see how far this lawsuit goes. In my own tax $$ interest, I hope it gets shot down early, but for maximum entertainment value, I’d love it to go all the way to the Supreme Court. Time for some (more) settled law over the federal income tax, eh?

TWEETS OVER TAX LAWSUIT



Yeah, if California won’t follow you off the cliff….

…that said, I am going to love the Supreme Court precedent that federal taxes can totally ignore state tax burdens.

Also, I’m going to love the Congress under Trump that passes a tax bill where there is $0 deductions for any state and local taxes.

Which is what they should’ve done in the first place.





In any case, the states can’t change federal law, and the feds can’t (directly) change state laws. So. Federalism — how does it work?



That’s an understatement. The Dems never think these thing through.

If I took the lawsuit seriously, that is. It’s basically political theater, just like the idiotic fake charities workaround they were floating (before the IRS went: BANG! Nuh uh.)



I think he’s pretty safe.


THEY’RE FIGHTING FOR THE LITTLE GUY! (1% is little, right?)

OTHER COMMENTARY

It should be interesting to watch.

Finally, for amusement purposes: Vanity Fair — WILL A NEW YORK PROBE FINALLY REVEAL TRUMP’S TAX RETURNS?

I think there’s a lot less in there than one would suppose, but whatever.


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