February 15, 2022 - Douglas Myser

Salt cap is not unconstitutional. In our ongoing Tax Court cases, we highlight the SALT cap, which was made political since it only impacted predominately coastal blue politically aligned states. The Second Circuit affirmed a district court's ruling that although four states had standing to challenge the cap on the deduction for state and local taxes(SALT), the states failed to prove that the cap is unconstitutional. Sec. 164 permits a federal deduction for taxes paid to state and local governments. Prior to enactment of the law known as the Tax Cuts and Jobs Act, taxpayers were permitted to deduct the full amount of SALT taxes paid or incurred. However, the Republicans took control of Congress and when Trump was elected, they wanted to limit campaign contributions from wealthy blue state donors, so they placed a limit on the cap to $10,000, causing those donors to have to pay more in taxes on expensive homes. Salt cap is not unconstitutional.

In addition, to arguing the cap is constitutionally sound, the government claimed that the district court lacked jurisdiction to hear the case. The district court established its jurisdiction, however, it held that the cap did not violate the Constitution. The states involved Appealed to the Second Circuit. Those wealthy land owners certainly won't be in need of Tax Resolution.

The states argued that the cap is unconstitutional because the SALT deduction is constitutionally mandated by Section 8 of Article 1 and the 16th Amendment. They also argued that because the cap coerces the states to lower taxes or cut spending, it violates the 10th Amendment, which provides that powers not granted to the federal government are reserved for the states. The Second Circuit found no evidence that the cap infringes on state sovereignty in violation of the 10th Amendment. The Court was unpersuaded by the argument that the SALT cap targeted particular states. Even though it impacted mainly blue states the court's reasoning seemed political.