The governors of New York, New Jersey and Connecticut said on Friday that they are forming a multistate coalition to sue the Trump administration for the 2017 bill, challenging the constitutionality of a provision that limits the ability of Americans to deduct state and local taxes from their federal bill.
The law establishes a new $ 10,000 cap on the amount of state and local property and income taxes that may be deducted from federal taxable income. That will disproportionately hurt its residents, the governors said in a conference call, and is motivated by politics rather than sound fiscal policy. The three governors, Andrew Cuomo of New York, Dannel Malloy of Connecticut and Phil Murphy of New Jersey, are Democrats.
"The new federal tax law destroyed a centennial fiscal structure between the federal government and the states." Cuomo said on Twitter. "New York will sue." The governor of New Jersey, Murphy, said: "Someone asked me, are you doing this symbolically?" I said no, "we believe that there is a very strong case and the closest states that join us, I think our opportunity is better".
The lawsuit will be filed in a federal court in the next few weeks, the governors said. They also said they are talking to other states about potentially joining the coalition.
New York, New Jersey and Connecticut are launching a coalition to sue the federal government to reverse the unfair tax law.
We will not sit idly by while the federal government attacks the fiscal health of our states.
– Andrew Cuomo (@NYGovCuomo) January 26, 2018
The new federal tax law destroyed a centennial tax structure between the federal government and the states.
New York will sue.
– Andrew Cuomo (@NYGovCuomo) January 26, 2018
Reducing the state and local tax deduction was one of the thorniest problems faced by Republican lawmakers who pushed legislation through Congress at the end of last year. Approximately 44 million Americans a year take advantage of the tax cut to collectively save an estimated $ 60 billion.
Local leaders fear that cutting back will undermine their ability to raise money for government services, including the police and schools. Without that compensation, local leaders said, taxpayers will start looking for help closer to home, which could make it difficult to provide basic services.
Malloy said, for example, that most of the money raised through property taxes in Connecticut goes to finance education, and the federal government should not have a role in that process. "This law does real damage to Connecticut taxpayers, who can lose more than $ 10 billion in state and local tax deductions," he said. "In short, hundreds of thousands of residents could see a tax increase even when the value of their property decreases."
Malloy and the other governors said that their states already send billions more tax revenues to Washington than they receive in return.  "This is an assault on those states," Malloy said. "I think it's illegal, that's why we're standing up and saying this can not happen."
A White House spokesman did not immediately return an email for comment.
Conservatives have long complained that the deduction is a windfall for high taxes. States of liberal inclination at the expense of states of low fiscal and conservative inclination. According to the conservative Tax Foundation, taxpayers in six states – California, Illinois, New Jersey, New York, Pennsylvania and Texas – claimed more than half of the dollar value of the deduction. It is estimated that reducing the tax deduction will collect almost $ 600 billion in federal taxes for 10 years, according to the Joint Tax Committee.
And legal experts have questioned whether federal courts would seriously consider repealing the law. Republicans articulated justifications for ending the state and local deduction beyond a simple attempt to punish liberal voters, according to some experts.
Still, some states are plotting other strategies to circumvent the change in the law. "Just because we are taking aggressive legal actions as a group of states does not mean that our creative juices and other alternatives will be ignored or closed," said Murphy of New Jersey.
In California, a state Senate leader has introduced legislation designed to circumvent that provision of the law and could be replicated throughout the country. The bill would allow taxpayers to make a charitable donation to the California Excellence Fund instead of paying certain state taxes. Then they could deduct that contribution from their federal taxable income.