In an opinion today, the Second Circuit affirmed Judge Oetken’s dismissal (covered here) of a lawsuit in which four states, including New York, sought to invalidate law passed in 2017 capping on the deduction for state and local taxes (SALT) on a filer’s federal income tax returns. The Second Circuit agreed that whatever burden the cap imposed on states was no so severe to violate federalism principles:
The Plaintiff States argue that principles of federalism protect each State’s “sovereign authority to raise revenue and determine their own fiscal priorities” and bar the federal Government from crowding States “out of traditional revenue sources.” Appellants’ Br. 31. But they have not demonstrated how the 2017 cap on the deduction unconstitutionally undermines their state sovereign authority over fiscal matters or their ability to raise revenue. The Plaintiff States fail to plausibly allege that their taxpayers’ total federal tax burden is now so high that they cannot fund themselves.
And while they argue that the SALT deduction lowers “the effective cost of state and local taxes,” Appellants’ Br. 37–38, they point us to nothing that compels the federal Government to protect taxpayers from the true costs of paying their state and local taxes.