New York won’t beat the federal tax law in court, and it shouldn’t

Gov. Andrew Cuomo kicks off the Tax Fairness for New York Campaign to move to sue the federal government over the tax overhaul in February.
Gov. Andrew Cuomo kicks off the Tax Fairness for New York Campaign to move to sue the federal government over the tax overhaul in February.
Kevin P. Coughlin/Office of the Governor

New York won’t beat the federal tax law in court, and it shouldn’t

Liberals should be rooting against the state’s lawsuit to block the SALT deduction cap.
July 25, 2018

Late last year, Congress passed and President Trump signed a law that cut taxes for many corporations and wealthy individuals. It did not, however, treat all affluent families the same. One of the law’s provisions capped the deduction for state and local taxes (SALT) at $10,000. This will mean a noticeable tax hike for many families in states with relatively high local taxes, like New York. Democratic – and even some Republican – politicians in these states are, understandably, upset about being targeted this way. And New York decided to fight back: It’s taking the federal government to court over the SALT deduction cap.

But the arguments advanced by the suit are weak, and they have virtually no chance of succeeding. And, even though the suit pits Democratic-controlled states against the avaricious Republican president and Congress, liberal New Yorkers should root against their state in court. That’s because New York’s legal reasoning would, if accepted by the U.S. Supreme Court, cripple the federal government’s powers of taxation in ways that would restrict future Democratic congresses as well.

When Gov. Andrew Cuomo first floated the idea of this suit, I reviewed several of the potential arguments states might make against the legality of capping the SALT deduction. New York v. Mnuchin, the lawsuit filed this month by New York along with three other states – Connecticut, Maryland, and New Jersey – forgoes most of them to focus on two constitutional amendments: the 10th and the 16th.

Arguments that rest largely on the 10th Amendment tend to be particularly weak, and this is no exception. The amendment declares: “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.” It does not itself place restrictions on federal power. It simply makes explicit what is implicit in the structure of the Constitution: While states retain any powers not explicitly forbidden to them by the Constitution, the federal government has only powers specifically granted to it by the text of the Constitution.

The obvious problem with invoking the 10th Amendment in this context is that the taxation power is explicitly given to Congress by Article I of the Constitution, and the power to pass an income tax was explicitly granted to Congress by the 16th Amendment. On its face, this would make the 10th Amendment irrelevant – the SALT cap involves a power expressly delegated to Congress by the Constitution.

Trying to get around this inconvenient fact, the suit alleges that the SALT cap violates an implicit limitation placed on the taxing power by the 16th Amendment. This limitation is not found directly or indirectly in the text of the amendment itself, which does not qualify the power to levy an income tax at all: “The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”

Rather than the text, the suit relies on history. As the suit observes, the first federal income taxes made state and local taxes deductible, and this has remained an enduring feature of the federal income tax ever since. This fact, according to the suit, “establishes that Congress understood that its newly minted power to impose a federal tax on incomes was subject to the same federalism limitations that had applied to every federal tax statute since the Founding.”

But the choice made by Congress to make state and local taxes deductible does not transform the choice into a constitutional requirement. The fact that Congress has thought a policy was desirable for an extended period does not make similar choices constitutionally required by future congresses.

The suit also alleges that the SALT cap “violate[s] the constitutional guarantee of equal state sovereignty.” Given recent developments in the U.S. Supreme Court’s federalism jurisprudence, this would appear to be the most promising avenue. The Supreme Court in the 2013 Shelby County v. Holder held that Section 4 of the Voting Rights Act of 1965 violated the principle of equal state sovereignty when it chose to treat jurisdictions with a history of vote discrimination differently than jurisdictions that do not.

Liberals, however, should be very wary of invoking this doctrine. As retired judge Richard Posner observed, the doctrine created by Chief Justice John Roberts had little discernible basis in the text of the Constitution: “There is no doctrine of equal sovereignty. The opinion rests on air.” To read secessionist John C. Calhoun’s theories of federalism into amendments designed to erase the vestiges of Calhounism from American constitutionalism was perverse. (Indeed, presumably because Shelby County is so reviled among liberals, the lawsuit doesn’t even cite it.)

But, one might argue, however wrong the decision was, the doctrine is now out there, so why shouldn’t liberals use it for their own ends? But precisely because Shelby County was so outcome-oriented, this is unlikely to work. The Supreme Court’s conservative majority only takes such unprecedented steps to benefit their own preferred policies and their fellow Republicans. Roberts had a long-standing aversion to the Voting Rights Act; he and the other Republican-appointed justices presumably don’t have a similar aversion to punishing high-tax high-service Democratic states.

And it wouldn’t be hard to distinguish the cases – the Voting Rights Act singled out specific states, whereas the SALT cap treats individuals in all 50 states the same. It is true that the SALT cap affects some states differently than others – but one can say the same thing about virtually any federal tax policy (including the SALT deductions themselves).

So the lawsuit will fail. This is a good thing. If it won, it would wreak havoc on federal tax policy. Taken to its logical conclusion, New York’s line of reasoning could be used to overturn progressive income taxation altogether: “Income is not distributed evenly among the 50 states,” Ian Millhiser writes in ThinkProgress, “and any tax regime that imposes additional burdens on the wealthy will violate the rule described by the New York complaint.”

This is a fight that will have to be won at the ballot box.


Scott Lemieux is a lecturer in political science at the University of Washington.

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Scott Lemieux
is teaching professor of political science at the University of Washington.