Four Blue States Sue Over Tax Reform. It May Be the Dumbest 'Resistance' Lawsuit Yet.

Posted: Jul 19, 2018 10:25 AM

Who's up for some stupid, resist-y blue state posturing that will almost certainly end up being a colossal waste of taxpayer dollars and resources?  New York liberals, that's who.  If you click on the tweet below and open it on your browser, you'll see scores of responses from Empire State Democrats cheering on their state Attorney General's meritless, doomed stunt, which purports to seek the invalidation of a duly-enacted federal tax provision based on...well, something.  There's some legal jargon thrown in here, but this little misadventure is truly nothing more than pure signaling.  She might as well just come out and say, "we're suing Republicans because we don't like them and don't think they should be in charge of things:"  

Several state-level Obamacare lawsuits were built on fairly solid constitutional claims, eventually worming their way up to a closely-divided Supreme Court.  Likewise, a number of state-based challenges to Trump policies, including the original travel ban, resulted in challenges, injunctions and mandated alterations. This farce, however, is headed nowhere:

The 2017 federal tax law, which resulted from a hyper-partisan and rushed process, drastically reduced the deduction by capping it at $10,000. An analysis by the New York State Department of Taxation and Finance shows that the cap will increase New Yorkers’ federal taxes by $14.3 billion in 2018 alone, and an additional $121 billion between 2019 and 2025. As set forth in the complaint, the law flies in the face of centuries of precedent, which establishes constitutional limits on the federal government’s ability to use its tax power to interfere with the sovereign authority of the states. For the entire history of the United States, every federal income tax law protected the sovereign interests of the states by providing a deduction for all or a significant portion of state and local taxes. This uninterrupted history demonstrates that the unprecedented cap on the SALT deduction is unconstitutional, as the lawsuit notes.

The federal legislature capping a federal tax deduction, evenly applied across all 50 states, is 100 percent constitutional. New Yorkers (and residents of a handful of liberal northeastern states who've signed onto this silliness) enjoy no constitutional "right" to have any particular portion of their state and local taxes eligible to help defray their federal tax bill. Ed Morrissey scoffs at this nonsense:

There is nothing in the Constitution that requires the federal government to reimburse the cost of state taxes, which are after all entirely within the control of the state. There is no such thing as an “uninterrupted history” clause within the Constitution...Had the bill singled out New York for disparate treatment, that might be grounds for judicial intervention, but it doesn’t. It sets the same $10,000 cap on deductions in all states, a level which ensures that the only people impacted by this policy will be those in the top quintile of earners nationwide anyway. The argument that a federal tax policy applied evenly across all states somehow violates state sovereignty and acts in a discriminatory fashion is equally absurd. The reform bill has no direct impact on the rights of states to set and collect their own taxes. Congress has its own sovereignty and is not required to indemnify states from the impact of their tax policies.

Philip Klein cuts to the chase: "This is a completely idiotic lawsuit. Idea that limiting a federal tax deduction in a way that applies equally to all states is a violation of state sovereignty is absurd."  Meanwhile, Morrissey sees an obvious remedy for elected officials in New York and elsewhere who profess to be terribly concerned about their citizens feeling more of the full brunt of their state tax burden: "New York’s sovereignty is precisely the solution for this issue. Cuomo and the New York legislature can simply change their tax code to save their citizens the extra cost, which originates from the state of New York and not from Congress. They want the money without the political headache, and they want the federal judiciary to rescue them from the consequences of their high-tax policies. This is just a threadbare attempt to shift the blame for those tax policies."  Exactly.  Under the pre-reform regime, taxpayers from moderate- to low-tax states effectively subsidized high-tax state residents because the latter group could write off those taxes when filing their federal returns.  The new law levels the playing field by limiting that deduction to $10,000 across the board (in order to help offset the on-paper cost of lowering individual and corporate rates).  

If taxpayers in tax-happy states start to feel a greater pinch because of the heavier levies imposed upon them by their state representatives and governors, they can demand that those representatives reduce their taxes, vote for new representatives who prioritize lower taxes and fiscal restraint, or move to a place where more appealing laws are on the books.  Suing the federal government as a "solution" is a legal and intellectual dead end.  But winning, I suspect, isn't really the point here.  The point is to appease a political constituency that wants to see "progressive" politicians doing something, no matter now frivolous or dumb. Ironically, what New York et al are attempting in this case is a demanding an effective tax cut for the rich.  Roughly 80 percent of households (and 91 percent of middle income households in 2018) are getting a tax cut under the new law, and the overwhelming majority of filers take the (now doubled) standard deduction, rather than itemize.  So the relatively tiny portion of "victims" of the newly-capped deduction are wealthy itemizers from rich, blue states:

Why are Democrats from New York, New Jersey, Connecticut and Maryland insisting that rich people in their states get special treatment?  Why would they risk jeopardizing middle class tax relief to help the wealthiest?  I could have sworn they're supposed to be against such things.  I'll leave you with a reminder that this isn't even the most moronic political gambit to come out of New York within the last week or so.  That dubious honor goes to Governor Andrew Cuomo, who allegedly has a law degree:

If the Supreme Court does that, he'll sue!  And maybe his suit will get all the way up to the...oh wait.