A federal appeals court has rejected an offer from New Jersey and three other states to lift the Congressional limit on state and local tax deductions.
The SALT deduction provides some relief for residents of high-tax countries like New Jersey by allowing them to deduct state and local taxes from their federal income taxes. Donald Trump’s administration advocated a $ 10,000 cap on this deduction.
The New Jersey attorney general had argued that Congress had no constitutional power to impose this limit and requested that it be lifted.
A lower court rejected this argument. The U.S. Court of Appeals for the Second District upheld the lower court’s ruling.
Part of the New Jersey reasoning was the inequality created by the SALT cap. With the highest wealth taxes in the country, this has had a disproportionate impact on the people who live here, unlike lower taxed states. It was a de facto penalty for New Jersey tax policy, the AG said.
In its ruling, however, the court not only rejected efforts to lift the tax ceiling, but also affirmed the right of Congress to pass laws that are inherently injustice to states.
The SALT upper deduction limit is not dissimilar to the myriad federal laws, the benefits and burdens of which are unevenly distributed across the country and individual states. Congress can use its purchasing power to incentivize states to act in accordance with federal policy as long as pressure does not turn into coercion. – U.S. 2nd District Court of Appeals
There is still hope in Congress for tax breaks. The New Jersey Congressional delegation has been campaigning for new spending bills to incorporate changes to the SALT cap, but what that might look like is unclear.
Congress and President Joe Biden have yet to agree on what the spending bills will be, and without those numbers, negotiating SALT is difficult. New Jersey Senator Bob Menendez told Bloomberg.com there was “support and concern about SALT” but with no final budget figures they stood still.
The non-partisan joint tax committee has already estimated that a two-year suspension of the SALT cap would cost the federal government $ 178 billion in revenue. That would be problematic for Democrats looking for ways to fund things like fighting climate change, free tuition, and free childcare.
As the overall budget is reduced, the revenue foregone by the lifting of the SALT cap becomes more significant.
Cities in New Jersey Actually Lowering Property Taxes in 2020
New Jersey property taxes rose by $ 158 over the past year for the average homeowner, bringing the average home tax to $ 9,111. Here are the municipalities whose average tax burden has decreased.
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