TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Wednesday, January 3, 2018

Tax Profs Weigh In On Potential State Lawsuits To Block Repeal Of The State & Local Tax Deduction

Reuters, U.S. Tax Bill May Face Lawsuits With Long Odds But Political Payoffs:

Democratic-leaning states may take legal action to challenge the cap on deductions of state and local taxes under the sweeping overhaul of the U.S. tax code, and even though such lawsuits would face long odds they could help galvanize Democrats for next year’s mid-term election. ...

Law professors said legal challenges would likely rest on arguing that the provision interferes with the protection of states’ rights under the U.S. Constitution. ...

Darien Shanske, a tax law professor at the University of California Davis School of Law, said the governors would probably argue that restricting the SALT deduction, which dates back to the introduction of the federal income tax in 1862, violates the U.S. Constitution’s 10th Amendment that protects states’ rights.

Shanske and other tax experts said the federalism argument would need to overcome the U.S. Supreme Court’s historically broad interpretations of Congress’ 16th Amendment power to impose taxes.

“As a general matter, nothing prevents the federal government from changing the SALT deduction,” said David Gamage, a professor of tax law at Indiana University’s Maurer School of Law. ...

Kirk Stark, a professor of tax law at the University of California, Los Angeles School of Law, said there is a slight possibility that a federalism argument against limiting the SALT deduction could gain traction. “Courts create new law all the time,” he said, noting that decisions on matters this sweeping tend to become political.

But some legal experts noted that the state’s rights argument is more typically a conservative position. Using it to challenge the SALT provision could be a move that Democratic governors come to regret in the future, said Daniel Hemel, a professor at the University of Chicago Law School. “The progressive agenda depends on the federal government being able to raise revenue and the Supreme Court not getting in the way of that,” Hemel said.

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How do you get around the standing issue?

Posted by: Cheyanna Jaffke | Jan 3, 2018 11:34:54 AM

Finally the left gets a taste of their own medicine. Bottom's up guys.

Posted by: Dale Spradling | Jan 3, 2018 8:13:52 PM

Yet, we have consistently heard, "Deductions are a matter of legislative grace." Has this axiom always been untrue?

Posted by: Jeff | Jan 4, 2018 12:39:59 PM

State and local governments provide schools, road, bridges, and police and fire protection.

The federal government provides the military. Tell me one more time why progressives aren't interested in keeping more money at the state level?

Last time I checked progressives favored building over bombing.

Posted by: Federalism | Jan 5, 2018 1:28:12 PM

Regarding standing: If Massachusetts can have standing because it is particularly affected by rising sea level which might be slowed down by the EPA regulating carbon, high tax states have standing because the new law will cause its taxpayers to flee to less money-grubbing states.

Posted by: brad | Jan 7, 2018 2:03:12 PM