N.J., 3 other states sue Trump administration over gutted property tax deduction

New Jersey is joining three other high-tax states in suing President Donald Trump‘s administration to have the $10,000 cap on state and local tax deductions declared unconstitutional.

The four states, all in the Northeast, criticized the “highly rushed and partisan process” at the end of 2017 that the suit says resulted in federal tax code reforms that infringe on the states’ “sovereign authority to determine their own taxation and fiscal policies.”

“Simply put, the federal government violated the Constitution when it imposed new, arbitrary limits on the amount of state and local taxes that residents could deduct on their federal tax returns,” New Jersey Attorney General Gurbir Grewal said in a statement.

Homeowners in these states — New Jersey, New York, Maryland and Connecticut — will be the most harmed by the truncated deduction. 

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Nearly 24 million households earning between $75,000 and $200,000 took the deduction in 2017, and the Republican-led Joint Committee on Taxation estimates that will shrink to 8.7 million as a result of the cap.

In New Jersey, 41 percent of households claimed the state and local tax deduction, tied with Connecticut for second place behind Maryland, according to a report by the Pew Charitable Trusts.

“Congress has included a deduction for all or a significant portion of state and local taxes in every tax statute since the enactment of the first federal income tax in 1861,” the suit says. “The new cap effectively eviscerates the SALT deduction.”

The complaint names Treasury Secretary Steven Mnuchin and Acting IRS Commissioner David Kautter as defendants.

Elected leaders of these states, including Gov. Phil Murphy, have called the cap on deductions a politically motivated attack on Democratic-led states, who already contribute more to the federal government than they receive in services.

In the lawsuit, they argue the cap is an unconstitutional effort to coerce these high-tax states to change their tax policies.

“By imposing such inequality on the states, and targeting the plaintiff states in particular for unfavorable treatment, Congress violated the basic promise of the Constitution: the states have equal sovereignty under the law,” it says.

NJ Advance Media staff writer Jonathan D. Salant contributed to this report.

Samantha Marcus may be reached at smarcus@njadvancemedia.com. Follow her on Twitter @samanthamarcus. Find NJ.com Politics on Facebook.

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