Connecticut and three other Atlantic states continued their battle Tuesday against federal income tax changes that punish states which voted against Donald Trump in the 2016 presidential election.

Attorney General William Tong and Gov. Ned Lamont announced the filing of an appeal in the U.S. Court of Appeals for the Second Circuit. This will enable Connecticut, New York, New Jersey and Maryland to continue their battle to overturn a cap on the deductibility of state and local income taxes on federal returns.

Congress capped the state and local income tax — or SALT — deduction to $10,000 during a massive federal tax overhaul in 2017. Critics say it will disproportionately harm states with high property tax rates and great wealth.

“The SALT deduction cap is a politically motivated tax hike that will cost Connecticut taxpayers $2.8 billion each year. We are aggressively pursuing this appeal and will continue to fight to protect our taxpayers from Trump’s discriminatory and abusive money grab,” Tong said.

“President Trump and Congressional Republicans raised taxes for millions of middle-class Americans – intentionally targeting people who live in states such as Connecticut – while at the same time cutting taxes for corporations and the rich,” Lamont added. “Federal tax laws should not be written based on who lives in ‘blue’ states and who lives in ‘red’ states.”

Connecticut Attorney General William Tong Markeshia Ricks / New Haven Independent

Voters in many of the states impacted by the SALT deduction cap, including the four that filed the appeal, supported Democrat Hillary Clinton in the 2016 presidential contest.

But supporters of the cap say it was the linchpin of a $1.5 trillion federal tax overhaul, which included cutting taxes for wealthy Americans and slashing the corporate tax rate.

The SALT cap went into effect for the 2018 tax year. The Trump administration has estimated it would leave filers unable to deduct $323.1 billion in state and local taxes from their 2018 returns.

Connecticut and the three other Atlantic states filed their initial lawsuit in U.S. District Court of the Southern District of New York last year. Federal Judge Paul Oetken ruled in September that the four states failed to show that the cap exceeded Congress’ broad taxing power or was unconstitutional.

Tuesday’s appeal keeps that case alive.

But Connecticut also has a second lawsuit pending regarding this issue.

The 2018 General Assembly and then-Gov. Dannel P. Malloy changed state tax laws in an attempt to cushion the blow of the federal SALT cap.

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 a second lawsuit filed in July to contest the IRS ruling.

This case is pending in the U.S. District Court for the Southern District of New York.

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.

Join the Conversation

10 Comments

  1. A few points:
    1. Where did it say that SALT limitations were intended to punish Blue States? I don’t recall that language in the tax law.
    2. I find it ironic that the party supporting two of the most “free” money spenders and massive taxers running for President (Bernie and Warren) finds one element of the new tax law offensive.
    3. Where’s the lawsuit challenging the much higher deductions and lower tax brackets in the new tax law?
    4. Perhaps the party of tax and spend could do a little introspection of what their cumulative tax policy has done to our state. Business and individuals of means continue to leave Connecticut and our economy has been largely stagnant for 15 years.
    5. Can we elect an AG whose every day agenda doesn’t include stopping everything Trump does? Remember the good old days when AG Blumenthal just sued companies for all they were worth?

  2. Man, these AGs are so blinded by Democrat party Dogma they are blind to Root Cause, or are attempting to ignore it. The elimination of ths SALT Deduction is not the problem. The problem is Excessive Taxation and High Residential Property Taxes in Connecticit. New York, New Jersey and Maryland. Bottom line. It is not the elimination of the cap. It is the high level of taxation in the opposing states.

  3. This appeal has almost no chance because we already know the grounds that the federal court and definitely Supreme Court will deny the appeal and that HAS NOT changed – regardless of who sits in the Presidents chair. Congress has the power to try and fix SALT but it has very little support from other states. Connecticut should be focused on lowering income and property taxes for the middle class and not playing legal games wasting precious resources with weak arguments in front of federal courts. In reality, Connecticut may need to federal government in the future for a variety of bail out loans, especially if our economy remains sluggish, so our politicians should be working with congress and the federal government not waging battles we have very little chance of winning – strategy 101.

  4. “The SALT deduction cap is a politically motivated tax hike that will cost Connecticut taxpayers $2.8 billion each year.”

    And if we taxpayers didn’t have the state digging so deep into our pockets, the SALT deduction cap wouldn’t much matter now would it?

  5. What a joke. Along with thousands of former residents; logic and common sense have left CT for more tax and business friendly Red States. This has nothing to do with who did or didn’t vote for Trump. This is all about which States irresponsibility spend and spend and tax and tax. I can’t believe that they can say this is about Trump with a straight face. These fools are a disgrace.

  6. I thought the left loved more taxes… Oh…that’s right… it’s a Trump policy so it automatically bad!

  7. I disagree with the premise that CT is being punished by voting for HRC in 2016. The high tax states have been slowly taking away their own tax benefits. CT has cut back on property exemptions and nobody said squat. Then the CT politicians started to cut back on seniors and social security taxes but it punishes people that did save and planned for their future in CT. Another shell game promised by the democrats. Then we get our super majority democrats realize they may have went to far with tolls, but it is not turning out as they wished. Could it be that people are starting to realize that the democrats give with one hand and take much more with the other hand.

  8. Rein it in, don’t spend more than you have. The Feds are making it harder for Connecticut to raise taxes. CT wants to spend taxpayers money; CT doesn’t want the Feds to spend it first. This is not about saving taxpayers $$$ at all, it’s an argument about distribution.

  9. Love the term “abusive money grab” ….hmmmm where have I seen that done in recent history? The State Transportation Fund is one, but the list from CT is long.

Leave a comment
Cancel reply