An attempt made by Democratic majority states to get an enormous tax cut for the rich was rejected by the Supreme Court of the US on Monday. The court denied a request to review a challenge that the states of Connecticut, New York, Maryland, and New Jersey pushed on the SALT cap.
Former President Donald Trump had signed the tax reform law in 2017 when Congress pushed for a limit on how much state and local tax payments an American can get deducted from their respective income tax payments. It was done to have more efficient corporate and income tax cuts that helped meet the budget reconciliation of about $1.5 trillion. This amount was to be added to the federal deficit in a decade.
To no one’s surprise, as the Democrats in Congress argued that the tax reform gave the rich a huge tax break, Democratic states weren’t entirely on the same page. These states were against the SALT cap because they felt their rich residents now had an increased burden of the federal tax. Some states like New York even sued with the argument that Congress was violating constitutional rights by intervening in how states levy taxes.
A court filing from March argued that the federal government cannot intervene in a State’s ability to generate revenue for itself and its operations. The filing also mentioned that there had been an understanding between Congress and States for decades when it comes to taxes on state and local property, to preserve each state’s sovereign authority and right to handle taxations without interference.
The attempts of congressional Democrats to reverse the SALT deduction cap back in 2019 failed badly, and it has split the party on the issue. This divide is also seen in negotiations regarding a budget reconciliation bundle for Biden’s Build Back Better economic program.
In 2021, the House Democrats passed a legislature to push up the SALT tax deduction cap upto $80,000 by 2031. Many leftists like Alexandria Ocasio-Cortez argued that if the SALT cap gets totally eliminated the majority of benefits would go to 20% of earners, as the rich and wealthy folks will get huge tax breaks. Republicans aren’t worried about the repeal of the SALT cap as they expect to reclaim authority through midterm elections in November.