The U.S. Supreme Court on Monday turned away a challenge by New Jersey and three other states seeking to overturn the Republican tax law’s $10,000 cap on deducting state and local taxes.
The states, which also included New York, Maryland, and Connecticut, were among those hardest hit by the deduction cap imposed by the tax law, which the Tax Policy Center said gave 52% of the benefits to the richest 10% of taxpayers.
The 2nd Circuit U.S. Court of Appeals, upholding a lower court decision, ruled in October that Congress had the power to cap the federal deduction, part of the original income tax law. The Supreme Court gave no comment.
A spokeswoman for Gov. Phil Murphy, Alyana Alfaro Post, said the state was disappointed in the decision and would work with Congress to restore the full deduction.
“Governor Murphy believes that we can and must take action to make New Jersey more affordable for our residents,” she said. “Repealing the cap will benefit countless middle and working class families in our state, which has been forced to pay an extra $3 billion in taxes to the federal government.”
In their appeal to the high court, the states argued that the cap upended more than 150 years of the “constitutional principle” that the federal government should not interfere with their ability to collect property and income taxes to fund their own projects.
“Congress enacted the cap with the knowledge that it would inflict substantial economic harm on taxpayers in certain States, including those residing in the Petitioner States,” New Jersey and the other states argued in a 106-page brief. “And Congress enacted the cap with the intent that these and other harms to state (treasuries) would coerce Petitioners to lower their tax rates and reduce public investments.”
Most of the states disproportionately targeted by the GOP tax law, including New Jersey, traditionally send billions of dollars more to Washington than they receive in services.
While the deduction cap is scheduled to expire after 2025 under the tax law, House Republicans are on record in trying to make it permanent, passing legislation to do so in September 2018, two months before the tax law’s unpopularity contributed to them losing their majority.
The Democrats who took over the House voted in November 2021 to restore the tax break for most New Jerseyans as part of President Joe Biden’s 10-year, $1.75 trillion spending bill. But that measure failed in the Senate when U.S. Sen. Joe Manchin, D-W.Va., said he couldn’t back it.
Biden administration officials, while successfully urging the Supreme Court not to take up the legal challenge, have said they are willing to negotiate with congressional Democrats on legislation that would restore the tax break.
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Jonathan D. Salant may be reached at [email protected]. Follow him at @JDSalant.
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