High tax states always had a not-so-secret way of keeping people happy. Even as they imposed nose-bleed state and local taxes (SALT taxes) on their constituents, they knew it would be okay because those same taxpayers could write their local taxes off of their federal tax returns.
Essentially, as long as they itemized, whatever people paid in local property tax they could deduct from their federal income tax, which shared their local tax burden with all taxpayers in America.
Trump and the Republican Congress put an end to that with the Tax Reform Act, which limited the deduction to $10,000, which hit wealthy Americans in high tax states right where they live, in the wallet.
Governors and rich residents of high-tax states like New York, Connecticut, California, and New Jersey were livid. They’ve since taken action to restore the write off, including reclassifying some tax payments as charitable donations, and suing the federal government for interfering with state sovereignty.
The IRS disallowed the charitable giving angle earlier this year, and now a New York State Judge has found that the federal government didn’t get involved in any state decision. The federal government changed how it operates, which Congress is free to do. Now states can choose how they operate, by either continuing to charge their residents exorbitant taxes, or changing how they do business.
Governor Cuomo vowed to fight on, but it doesn’t look promising. His only hope is for a Democratic takeover in 2020, and a reversal of the law.
It looks like the rest of the nation won’t foot the bill for state and local taxes in these high-cost states for at least another year or two.