Four states sue Treasury Department, IRS over tax cap

July 17 (UPI) -- Four Democratic states filed a lawsuit Tuesday, stating they were unfairly targeted by a cap on federal tax deductions included in the 2017 federal tax overhaul law.

New York, Connecticut, Maryland and New Jersey filed a complaint against the Treasury Department, Treasury Secretary Steven T. Mnuchin, the Internal Revenue Service and Acting IRS Commissioner David Kautter in the U.S. District Court of New York, stating the federal tax law overturned more than 150 years of precedent by placing a $10,000 cap on the federal tax deduction for state and local taxes.

"The new cap disregards Congress's hitherto unbroken respect for the States' distinct and inviolable role in our federalist scheme. And, as many members of Congress transparently admitted, it deliberately seeks to compel certain States to reduce their public spending," the complaint states.

The lawsuit called for the court to invalidate the cap, which it described as an "unconstitutional assault" on the state's sovereign choices.

"By increasing the burden of those who pay substantial state and local taxes, the new cap on the SALT deduction will make it more difficult for the Plaintiff States to maintain their taxation and fiscal policies, hobbling their sovereign authority to make policy decisions without federal interference," the lawsuit states.

New York Attorney General Barbara Underwood said analysis by the New York State Department of Taxation and Finance showed that the cap will increase New Yorkers' federal taxes by $14.3 billion in 2018 and by $121 billion between 2019 and 2025.

"New York will not be bullied. This cap is unconstitutional -- going well beyond settled limits on federal power to impose an income tax, while deliberately targeting New York and similar states in an attempt to coerce us into changing our fiscal policies and the vital programs they support," Underwood said.