Blue states ask Supreme Court to hear challenge to SALT cap

Four Democratic-leaning northeastern states are asking the Supreme Court to hear a case challenging the cap on the state and local tax (SALT) deduction created by Republicans' 2017 tax law.

New York, New Jersey, Connecticut and Maryland filed their petition to the high court after a federal appeals court ruled against them in October.

"I am proud we are taking this issue to the Supreme Court to continue to fight on behalf of New York taxpayers," Gov. Kathy Hochul (D) said in a news release Monday.

Republicans created a $10,000 limit on the SALT deduction as part of their 2017 tax law in order to raise revenue to help offset tax cuts elsewhere in the law. But the cap is unpopular with politicians in high-tax, Democratic-leaning states, who argue that it has led to tax increases for residents and makes it harder for their states to provide robust public services.

New York, New Jersey, Connecticut and Maryland initially filed their lawsuit against the Treasury Department and IRS in 2018, arguing that the SALT deduction cap violates the Constitution. But a U.S. district court ruled against the states in 2019, and the U.S. Court of Appeals for the 2nd Circuit ruled against them in October.

In their petition to the Supreme Court, the states argued that the court should take up the case because "Congress's unprecedented curtailment of the SALT deduction presents a novel and important question about the limits of federal taxation power." They also argued that the appeals court ruling was incorrect.

"Contrary to the court of appeals' reasoning, the SALT deduction is not merely a matter of congressional grace," the states argued. "Rather, the deduction is rooted in the structural limitations placed on the federal government by basic federalism principles in the Constitution."

The petition to the Supreme Court comes as Democrats are discussing rolling back the SALT deduction cap as part of a wide-ranging social spending and climate package. The House passed a version of the bill in November that would raise the cap to $80,000. But Senate Democrats are expected to take a different approach, due to concerns from some that the House provision would provide benefits to high-income families.

Senate Democrats have yet to announce a deal on the SALT issue, and the broader spending package is in danger due to opposition from Sen. Joe Manchin (D-W.Va.).

One of the leading advocates in Congress for rolling back the SALT deduction cap is New York Rep. Thomas Suozzi, who is running against Hochul in the Democratic primary for governor.

"Looks like @GovKathyHochul is finally getting serious about SALT. Better late than never," Suozzi tweeted in response to the Supreme Court petition.