Connecticut Attorney General William Tong Frankie Graziano / Connecticut Public Radio

Connecticut filed another lawsuit Wednesday in its battle against federal income tax limits aimed primarily at those states that voted against President Trump in 2016.

The latest lawsuit, filed in the U.S. District Court for the Southern District of New York, seeks to strike down a new IRS rule that would prevent Connecticut residents from obtaining a full federal charitable deduction when they give to organizations established by their city or town.

“Connecticut won’t stand idly by while the Trump Administration harms our taxpayers,” state Attorney General William Tong said. “Our legislature sought to ease the financial burden this [federal tax] cap has on residents by passing a law to protect our taxpayers. The IRS final rule not only undermines those legislative efforts but it eliminates the state’s ability to mitigate the harmful effects of this law.”

“The federal tax reforms approved by Congress were promoted as a tax-cut, but in reality they’ve resulted in a tax hike for millions of citizens, including thousands here in Connecticut,” said Gov. Ned Lamont. “This was a purely partisan bill and — let’s be frank — aimed directly at blue states like Connecticut, New York, and New Jersey. It’s unfair, discriminatory, and unconstitutional.”

The controversy began in late 2017 when the Republican-controlled Congress enacted a $10,000 limit on the state and municipal tax payments that filers can deduct on their federal income tax returns.

It disproportionately punishes Connecticut and other states that rely heavily on state income and municipal property taxes to pay for government programs and services. 

In some communities in Fairfield County and Long Island, for example, many residents pay far more than $10,000 annually in real estate tax alone.

Most of the states in which taxpayers claim the largest state and local tax (SALT) deductions opposed Trump in 2016.

Connecticut joined New York, New Jersey and Maryland one year ago in challenging those tax changes in federal court. That case is still pending.

But the 2018 Connecticut legislature and then-Gov. Dannel P. Malloy also changed state tax laws in an attempt to cushion the blow.

One change allows municipalities to provide a property tax credit to taxpayers who make voluntary donations to a “community-supporting organization” approved by the municipality. While the federal deduction for state and local taxes could not exceed $10,000, the rationale is that some or all of that payment also could be deducted from federal taxes as a “charitable donation.”

But the IRS responded by nullifying this relief, ruling such contributions could not be deducted on federal income tax returns.

New York and New Jersey, which enacted state tax changes similar to Connecticut’s workaround legislation, joined Connecticut in the latest lawsuit.

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Keith M. PhaneufState Budget Reporter

Keith has spent most of his 31 years as a reporter specializing in state government finances, analyzing such topics as income tax equity, waste in government and the complex funding systems behind Connecticut’s transportation and social services networks. He has been the state finances reporter at CT Mirror since it launched in 2010. Prior to joining CT Mirror Keith was State Capitol bureau chief for The Journal Inquirer of Manchester, a reporter for the Day of New London, and a former contributing writer to The New York Times. Keith is a graduate of and a former journalism instructor at the University of Connecticut.

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10 Comments

  1. Connecticut filed another lawsuit Wednesday in its battle against federal income tax limits aimed “primarily at those states that voted against President Trump in 2016.”

    You mean those states that overspend, overtax, overpay and love to spend other peoples money. Connecticut, and most of those other high tax states, have nothing to show for their ridiculously high taxes– CT’s infrastructures a mess, budget’s a mess, CT’s school districts in our major cities are mostly failures (in spite of $$$ thrown at them), CT’s losing businesses.

    1. Hi Sue, we appreciate your comment, but please note our guidelines when commenting in the future: https://ctmirror.org/comments-policies/ Specifically, “If you have an opinion, back it up with data, history, other sources, anecdotes, personal experience, a logic trail, anything.”
      It is worth noting that, for a state that you say “loves to spend other people’s money,” Connecticut residents pay far more in federal tax dollars than the state receives back each year. The imbalance is higher than any other state in the nation: https://www.governing.com/week-in-finance/gov-taxpayers-10-states-give-more-feds-than-get-back.html

      1. Apologies, I didn’t realize I was not following CT Mirror guidelines. Below I have backed up my previous comments with “data, history, other sources, anecdotes, personal experience, a logic trail, anything”

        My Fairfield County city gets $0.07+/- back for every $1.00 it sends to the State of Connecticut; we already know down here what it’s like to give more than we get. I believe that Connecticut is one of the states that ‘overspend, overtax, overpay and love to spend other people’s money’; I don’t think I’m alone in that assessment.

        To back up my comments:

        WSJ re. budget & infrastructure: “Proposal (for tolls) by Lamont administration faces resistance as cash-strapped state hunts for infrastructure dollars” https://www.wsj.com/articles/connecticut-governor-pushes-to-bring-back-highway-tolls-11561310032

        WSJ re. business: “The state (Connecticut) also has only recovered 81% of the jobs it lost during the last economic downturn, the worst recovery in all of New England.” https://www.wsj.com/articles/connecticut-bets-on-businesses-luring-more-businesses-11554210639

        CT Mirror re. schools: “Gaps in achievement between the state’s most vulnerable students and their peers have remained unchanged since students began taking the Smarter Balanced Assessments three years ago. The majority of students from low-income families test far below where they should on reading and math, and less than one-third are proficient in those subjects.” https://ctmirror.org/2017/09/28/the-state-of-cts-public-schools-in-charts/

        Former Indianapolis mayor Stephen Goldsmith said famously that politicians can go to jail for stealing money, but not for wasting it.

      2. Correct. It seems that CT mirror wants to (((moderate))) the flow of information or opinion. I vbelieve your first comment was sufficient for “anecdotal evidence”. CT is in dire straights like you wouldn’t believe… I just moved here from GA. Everything is outdated from traffic lights, DMV systems (that just got “upgraded” recently), roads, business practices, antiquated taxation that’s just absolutely choking what’s left of a middle working class here.

        I pay 5+% effective property tax in hamden on a ~1300 sq ft home with 0.25 acres. So around 6500 usd. A 2.5 million dollars mansion that’s 5k+ sq ft on 0.5 acre in downtown denver, CO pays the same property taxes as I do here. Don’t believe me? Go on Zillow and look! It’s got to change within the next few years or CT will become a Detroit 2.0. The dems/deep state here want to drain the wealthy pretty badly, and with that everything and everyone else. It’s not going to bode well. CT is on a fast track to accelerated destruction.

  2. ““Connecticut won’t stand idly by while the Trump Administration harms our taxpayers,” state Attorney General William Tong said. ”

    Isn’t the root cause of this problem, excessively high property taxes on personal residences in the State of Connecticut? If the state taxes weren’t so high, people wouldn’t need the SALT Deduction. Mr Tong, sounds like a, “Chicken or Egg” Issue.

  3. Knew that was coming when states started trying to circumvent the $10k cap. Any reasonable person would have told you the workaround loophole was going to be closed sooner or later. If states wanted to do this legally, they should have gotten a ruling from the IRS first.

  4. nice to see the federal government finally FORCING big spending Democrats to PAY THEIR FAIRSHARE. Responsible Flyover country has been shouldering an UNFAIR BURDEN!

      1. Paul Tudor Jones, Edward Lampert, Thomas Peterffy and Barry Sternlicht know better. Get out while you can. I grew up in CT and worked my entire professional life watching Democrat politicians and their backers destroy this wonderful state. See you later. EDIT – on second thought the Republicans were just as bad!

      2. So you’re implying to me, if this balance is corrected, then we’d see the adjustment reflected in our taxes being lowered? I like your sense of humor and naivety. The power of the people has been lost for awhile, maybe one day New England will wake up again. It’s such a shame the media, publishing companies, and press have ingrained in most people here that journalism is alive and the prima facie of what’s read and conveyed is truth.

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