2017 Tax Act targets New York and other states controlled by Democrats, state officials argue. Photo: Mark Lennihan/AP

The Trump administration argued in a recent filing against a lawsuit from New York over the new cap on the deductibility of state and local taxes that, contrary to public statements by Gov. Andrew Cuomo, the federal tax law passed in 2017 does not intentionally target states controlled by Democrats.

Attorneys from the U.S. Department of Justice wrote in the filing that the state's argument about the tax law being written to disenfranchise blue states in particular was “questionable at best” and that the state had not shown enough harm done by the cap to bring the lawsuit.

“Much of the States' purported 'evidence' of targeted, differential harm is questionable at best,” the filing said. “They argue that the 2017 Tax Act was expressly 'designed' to penalize their taxpayers while rewarding those in other states, but marshal little support for this conclusory point.”

The argument comes as Cuomo and Democrats from New York continue to rail on President Donald Trump and Republicans in Congress over the new tax law, which they allege has led to a multibillion-dollar decrease in revenue heading into negotiations on this year's state budget.

Jason Conwall, a spokesman for Cuomo, echoed that claim in a statement on the new filing Monday afternoon.

“The Trump Administration's recent court filing once again demonstrates that there is no legal principle, no rational legal argument, and no precedent that supports the blatant and targeted assault on New York and other Democratic blue states,” Conwall said. “This illegal assault has already cost New York $2.3 billion in lost personal income tax revenue and we will continue to aggressively fight against it in court.”

During a press conference on the revenue shortfall last month, Cuomo said Republicans intentionally targeted states controlled by Democrats when they passed the new cap on state and local tax deductions.

“What do these states have in common? They are all blue states,” Cuomo said. “If you look at the non-SALT states, you don't see the same drop in revenue. That cannot be a coincidence.”

Trump and other Republicans have countered that point, instead saying those states happen to have relatively high state and local taxes. The federal government has little control over that burden, they've argued. Cuomo has, conversely, claimed the cap was designed to shift revenue from those high-tax states to other states, which are majority Republican.

The Trump administration flipped that argument on its head in the filing, saying Cuomo's argument, rather than the tax law, was fueled by politics. Attorneys for the administration argued that New York brought the lawsuit because of its political opposition to the Republican-backed tax law, and that the litigation should therefore be thrown out.

“This is an argument over granular legislative choices, not constitutional standards; it is classically political, and not suited for judicial intervention,” the filing said.

Cuomo met personally with Trump last month to discuss the cap, though the conversation merited no action to grant relief for taxpayers whose state and local taxes exceed the deductible cap of $10,000. Cuomo has argued that the cap will drive, and has driven, residents and businesses out of the state from areas with high local taxes, such as Long Island and the New York City suburbs.

But the Trump administration argued in its filing that, rather than seek to strike down the cap through litigation, the states involved in the lawsuit could adjust their own fiscal policies to adapt to the new rule. Connecticut, Maryland, and New Jersey are also plaintiffs in the suit.

“They need not participate in any federal process, and they may choose to adjust their fiscal policies in any number of ways in light of the 2017 Tax Act, or not at all,” the filing said. “Moreover, the States do not explain the difference between this supposed injury and any other scenario in which a state contemplates taking some action in response to a change in federal law that affects its citizens.”

The states, led by New York, argued in their own filing in support of the litigation in December that forcing states to adjust their own tax policies in response to a new federal law is precisely why the cap should be viewed as unconstitutional.

Pressuring states to take action they wouldn't have without the cap, they argued, deprives them of their sovereign power to impose their own tax policies, rather than work around the consequences of a new federal law. They also claimed that, because of the tax law, they may have to adjust state and local spending to reflect revenue streams that are expected to change as a result of the new cap.

“It is irrelevant that the States can potentially avoid the financial harms intended by the new cap by changing their policies,” the states said in the filing. “The new cap on the SALT deduction further implicates the sovereign interests of Plaintiff States by attempting to override their public investment decisions.”

The states also claimed they would lose specific revenue streams due to the cap, particularly from lower spending by residents who could be hit with a higher federal tax bill because of the law. That money would no longer be available for residents to spend, which they argued would cause significant harm to their financial well-being.

“For example, the decline in household spending in New York will mean that the State collects less in sales taxes because residents will have less income to spend on goods and services,” the states said in the filing.

Another filing in the lawsuit is due from the state later this month, after being delayed during the federal government shutdown earlier this year. Representatives for New York Attorney General Letitia James did not respond to a request for comment on the Trump administration's new filing on Monday.

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