Democratic attorneys general file one of the stupidest lawsuits of the Trump era

Which side are they on?


So here’s a story you’ve probably heard before. Congress enacted a policy that, if allowed to take effect, will cost some rich people a bunch of money. In response, a partisan group of state attorneys general file a lawsuit, rooted in an absurdist understanding of states’ rights, that seeks to reverse this policy. If the lawsuit is successful, it could do permanent harm to Congress’ power to enact progressive policies and potentially help to usher in a golden age of conservative judicial activism.

But this time, the story comes with an M. Night Shyamalan-like twist. The attorneys general behind this suit are Democrats! From solid blue states!

And so we get New York v. Mnuchin, an attack on the federal government’s power to set its own tax policy that is so aggressive, and so hard to square with a century of established law, that it would make Neil Gorsuch blush.

The best case scenario in the New York lawsuit is that the four attorneys general behind this suit are ridiculed out of court and sent back to their states with their tails between their legs. The worst case scenario is that they actually prevail and send America’s tax policy into chaos.

Pass the SALT

New York concerns the State and Local Tax (or “SALT”) deduction, which allows some taxpayers to deduct some of the taxes they pay to state or local governments from their federal income tax return. Before the 2017 Trump tax law, certain taxpayers could deduct their property taxes as well as either their state income or sales taxes, but not both. After the Trump tax law, the SALT deduction is now capped at $10,000.


This particular change — which was included in the Trump tax plan largely to shift taxation towards blue states which tend to have higher income tax rates — will not be felt by most taxpayers. Only a third of taxpayers itemize their deductions, and these taxpayers tend to be higher income earners. According to the Tax Policy Center, if Congress were to lift the $10,000 cap, the top one percent of income earners would see 56.7 percent of the benefits. And the top 20 percent would see 96.3 percent of the benefits.

Nevertheless, the complaint filed by the attorneys general of New York, Connecticut, Maryland, and New Jersey speaks of the new $10,000 cap as if it is a catastrophic event that wholly reworks America’s constitutional balance. “The SALT deduction is essential to prevent the federal tax power from interfering with the States’ sovereign authority to make their own choices about whether and how much to invest in their own residents, businesses, infrastructure, and more,” the lawsuit claims. It then adds, in a line that seems more at home at an event hosted by the Federalist Society than in a complaint signed by Democratic elected officials, that this “sovereign authority” is supposedly “guaranteed by the Tenth Amendment and foundational principles of federalism.”

Much of the New York complaint is difficult to parse. It flashes back and forth between explanations of why the new SALT deduction cap is bad policy (some of which are persuasive) and heavy-handed attempts to frame these policy arguments as legal claims. At least one of its arguments ignores the very reason why a constitutional amendment exists. Nevertheless, the four attorneys general’s arguments can largely be boiled down to three assertions.

First, they argue that the new cap is unfair because it means that taxpayers in high income tax states like New York will pay a higher share of taxes than taxpayers in other states. “The Tenth Amendment,” they claim, “requires the federal government to respect the equal sovereignty of the sovereign States.” And the new $10,000 cap somehow violates that principle.

Second, they argue that the cap “targets for unfavorable treatment those States that have exercised their sovereign authority to adopt relatively high taxpayer-funded public investments.” The complaint quotes various Trump administration officials and Republican lawmakers, who argue that the SALT deduction cap may encourage high tax states to reduce their taxes.


Third, the complaint claims that “Congress has provided a deduction for all or a significant portion of all state and local taxes in every federal income tax law since the adoption of the Sixteenth Amendment,” and claims that it would somehow be unconstitutional to break with this history.

Yeah, this is stupid

None of these arguments make sense. Starting with the historic argument, it simply is not true that past Congresses “provided a deduction for all or a significant portion of all state and local taxes in every federal income tax law since the adoption of the Sixteenth Amendment.” Recall, first of all, that only one-third of taxpayers itemize their deductions. That means that about two-thirds of federal taxpayers did not receive a SALT deduction even though nearly all of them would have paid state or local taxes.

Moreover, many upper income earners pay the “Alternative Minimum Tax,” a mechanism intended to prevent relatively wealthy taxpayers from stringing together a long list of deductions to reduce their tax burden below a certain level. Taxpayers who pay the AMT are not eligible for the SALT deduction.

The universe of taxpayers who actually receive a SALT deduction, in other words, is only a small fraction of all federal taxpayers. That hardly amounts to a “deduction for all or a significant portion of all state and local taxes.”

The New York complaint’s suggestion that federal tax policy cannot be used to encourage states to change their own tax policies is also incorrect.


Literally any change to federal tax policy will, at least on the margins, impact state tax policy. If the federal government reduces the mortgage interest tax deduction, for example, that will diminish the price of homes and reduce what states can collect in property taxes under their existing laws. If the federal government eliminates a tax benefit for hybrid car owners, that will reduce automobile sales and cause states to collect less money in sales taxes.

There is no such thing as a change in federal tax policy that does not, in some way, encourage states to change their own tax policies if they want to keep the amount of revenue they are collecting constant.

Indeed, the same thing could be said about the SALT deduction as it existed before the 2017 tax law. Recall that the SALT deduction allows taxpayers to deduct state sales taxes or state income taxes, but not both. Such a regime discourages states from having hybrid tax regimes — that is, it encourages them to have either an income tax or a sales tax, not both. But that doesn’t make the pre-2017 SALT deduction unconstitutional.

No seriously, this is really, really stupid

That brings us to the New York complaint’s final argument, that the $10,000 cap somehow disrespects “the equal sovereignty of the sovereign States.” This isn’t just a bad argument, it is a frivolous argument. It suggests that literally none of the lawyers who worked on this case bothered to research some very basic constitutional history.

This “equal sovereignty” claim largely boils down to a complaint that the $10,000 cap imposes greater burdens on taxpayers from some states than on others. “Taxpayers in the Plaintiff States will pay a substantial portion of the increase in
federal taxes generated by the new cap on the SALT deduction,” the lawsuit claims. “Imposing such inequality on the States,” the complaint continues, violates “the basic promise of the Constitution: the States have equal sovereignty under the law.”

The claim here, in other words, is that the $10,000 cap is somehow unconstitutional because its effects are not apportioned equally among the states.

There actually was a moment in American history when this would have been a pretty strong claim. Article I of the Constitution distinguishes between “direct” taxes, which must be “apportioned among the several states,” and indirect taxes, which are not subject to this apportionment requirement. Under this regime, if New York has 8 percent of the population, then any “direct” tax must be structured so that exactly 8 percent of the revenue collected by the tax comes from New York.

The Supreme Court’s 1895 decision in Pollock v. Farmers’ Loan and Trust Company held that a federal income tax counted as a “direct” tax, and therefore was unconstitutional because it wasn’t apportioned. If Pollock were still good law, then the four attorneys general behind New York would have a really strong argument.

But Pollock is not good law. It was overruled by the Sixteenth Amendment to the Constitution. The lawyers behind the New York lawsuit literally could have figured out that their argument is trash if they had bothered to read the Sixteenth Amendment’s Wikipedia page.

Legal arguments aside, there is a very basic reason why Democratic elected officials should not make the kind of arguments raised in New York. Part of the reason why the $10,000 cap disproportionately impacts states like New York is that New York has higher income tax rates than in some states. But New York also pays more federal taxes than most states because there are more rich people in New York.

If the Supreme Court were to hold, as the New York complaint suggests, that tax laws cannot impose greater burdens on some states’ taxpayers than on others, that would be the end of progressive taxation. Income is not distributed evenly among the 50 states, and any tax regime that imposes additional burdens on the wealthy will violate the rule described by the New York complaint.

If a team of Republican attorneys general brought such a suit, it would be a breathtaking attempt to rewrite America’s social contract and to permanently enshrine GOP policies into the Constitution. Instead, four Democrats filed a lawsuit that will do the GOP’s dirty work if it succeeds.