Remember when California, New York, Connecticut, Maryland, and New Jersey moved to counteract the GOP’s 2017 tax law, claiming the bill unfairly targets states that are primarily left-leaning?
Well, the IRS and the Treasury Department this week rolled out a counter-counterattack. Their new rule that “targets legislation in those states that would allow taxpayers to claim a charitable deduction for state and local tax payments above the $10,000 limit set in the tax cuts passed by Congress last year,” the Los Angeles Times reports.
In other words, the IRS is saying “nope” to a rash of state laws designed to circumvent the limit on deductions for state and local taxes.
“Congress limited the deduction for state and local taxes that predominantly benefited high-income earners to help pay for major tax cuts for American families,” said Treasury Secretary Steven Mnuchin. “The proposed rule will uphold that limitation by preventing attempts to convert tax payments into charitable contributions.”
The period in which the IRS will take comments on the rule runs through through Oct. 11. On Nov. 5, the agency will hold a public hearing.
“The rule is likely to be in place by the end of the year,” the Times predicted.
The announced rule will no doubt escalate an already bitter partisan war between Treasury and the IRS and certain blue states looking to protect their wealthiest residents from higher taxes.
Recall that New York, Connecticut, Maryland, and New Jersey filed a lawsuit earlier this year against the federal government alleging they were being unfairly targeted by the 2017 tax law. The complaint, which names the IRS and the Treasury Department as defendants, argued that 2017 tax law’s cap on how much taxpayers are allowed to deduct for state and local taxes from the federal portion of their bill is an “unconstitutional assault” on state sovereignty (the cap used to be unlimited, but is set now at $10,000).
“New York will not be bullied. This cap is unconstitutional — going well beyond settled limits on federal power to impose an income tax, while deliberately targeting New York and similar states in an attempt to coerce us into changing our fiscal policies and the vital programs they support,” New York Attorney General Barbara Underwood said this week in a statement.
The lawsuit itself is a bit silly, especially the part where the plaintiffs present an argument that relies on a bad paraphrasing of National Review’s Ramesh Ponnuru.
Get ready for a knock-down, drag-out fight between Treasury and the IRS and some of these blue-state lawmakers. If nothing else, at least prepare yourself for a fresh round of primo fundraising content from blue-state governors.
