Salty about the SALT Deduction Cap, Blue States File Suit in New York v. Mnuchin

Alak Mehta, CLS ’21

Does The Tax Cuts and Jobs Act of 2017’s cap on state and local tax (SALT) deductions exceed the scope of Congress’ taxing power under the Constitution?[1] Secondly, does this provision unconstitutionally coerce states into changing their tax policies, in violation of the principles of federalism embodied in the Tenth Amendment?[2] No and no, according to U.S. District Court Judge J. Paul Oetken, in a September 30, 2019 opinion dismissing a constitutional challenge levied by four blue states – New York, Connecticut, Maryland, and New Jersey – against the U.S. Treasury Department.[3]

The Tax Cuts and Jobs Act of 2017, signed into law by President Trump, implemented a cap of $10,000 on the amount a taxpayer may deduct from her federal taxable income to account for state and local tax payments.[4] Historically, taxpayers have been able to deduct the full amount of SALT payments on their federal tax returns (with some exceptions).[5] The plaintiff states, whose state and local taxes tend to be substantially higher than the national average, challenged this amendment due to the adverse impact it is likely to have on the states themselves and their taxpayers.[6]

Before delving into the merits of the challenge, Oetken disposed of three challenges by the United States to the court’s subject matter jurisdiction.[7] First, Oetken found that the states have standing to challenge the provision, conferred by the loss of tax revenue the states allege will result from the SALT deduction cap.[8] More specifically, the states contend that this tax revenue decrease will arise from declines in home values[9] and household spending.[10] Second, Oetken held that the Anti-Injunction Act, which bars state and federal courts from hearing suits seeking injunctions prohibiting the collection of federal taxes, does not cover this lawsuit because the states assert a violation of their own rights, not the rights of their taxpayers (which would likely be covered by the Anti-Injunction Act.)[11] Third, Oetken held that the political question doctrine does not bar the court from resolving this dispute, as assessing the constitutionality of a statute “is what courts do.”[12]

Moving on to the merits of the case, Oetken first held that there is no implicit constitutional limitation on the federal taxing power preventing Congress from setting a SALT deduction cap.[13] Put differently, Congress holds plenary power under the Constitution to tax income, meaning that deductions granted are purely a matter of legislative grace.[14] In his analysis, Oetken acknowledged that this cap on SALT deductions is “in some ways unprecedented,” but he failed to find any structural limitation in the Constitution barring such a cap.[15]

After confirming that SALT deduction caps are not unconstitutional per se, Oetken then found that the specific SALT deduction cap in the Tax Cuts and Jobs Act of 2017 does not unconstitutionally coerce states to decrease their tax burdens.[16] Drawing from the Supreme Court’s anti-commandeering and Spending Power jurisprudence, the plaintiff states argued that the SALT deduction cap represents an intentional effort by Congress to compel high-tax states to lower their tax rates.[17] In response, Oetken first noted that legislative intent is not relevant to the coercion inquiry: “An otherwise valid federal law does not offend the Constitution simply because it seeks to affect state policies.”[18] Rather, the coercion inquiry must be based on the statute’s effects.[19] Following this principle, Oetken next held that the States had not plausibly suggested that the SALT deduction cap would have the effect of “burden[ing] their taxpayers so heavily” that the States will be forced to choose between lowering tax rates and facing budgetary catastrophe.[20] In other words, the SALT deduction cap is not unconstitutionally coercive.

Oetken’s opinion is unsurprising, given federal courts’ reluctance to find even the imposition of conditions on states’ receipt of federal grants unconstitutionally coercive.[21] However, it is notable in its acceptance of the application of the coercion inquiry to a new domain: federal tax legislation. Given the plaintiff states’ loss in this case, it appears that their best hope of reinstating a complete SALT tax deduction is through Congress, rather than the courts.



[1] Tax Cuts and Jobs Act, Pub. L. No. 115-97, 131 Stat. 2054 (2017); U.S. Const. art. 1, §8, cl. 1.

[2] U.S. Const. amend. X; see South Dakota v. Dole, 483 U.S. 203 (1987).

[3] New York v. Mnuchin, 2019 WL 4805709 (S.D.N.Y. Sep. 30, 2019).

[4] New York v. Mnuchin, 2019 WL 4805709 (S.D.N.Y. Sep. 30, 2019), at *3.

[5] Id. at *12.

[6] Id. at *1.

[7] Id. at *5-11.

[8] Id. at *8.

[9] The SALT deduction cap has, in fact, led to a decline in home values in several counties in the plaintiff states, according to a recent Moody’s study. See Jonathan D. Salant & Samantha Marcus, Your N.J. Home is Worth Less Than It Should Be, Thanks to the Trump Tax Law, (Oct. 12, 2019),; Moody’s Analytics, Home Price Impact of Tax Cuts and Jobs Act of 2017, ProPublica (Oct. 2019),

[10] New York v. Mnuchin, 2019 WL 4805709, at *6-7 (S.D.N.Y. Sep. 30, 2019)

[11] Id. at *10.

[12] Id. at *11, (quoting Zivotofsky v. Clinton, 566 U.S. 189, 195 (2012)).

[13] Id. at *12-14.

[14] Id. at *12-14.

[15] Id. at *12.

[16] Id. at *14-17.

[17] Id. at *14; see South Dakota v. Dole, 483 U.S. 203 (1987).

[18] Id. at *14.

[19] Id. at *16.

[20] Id. at *16.

[21] But see Nat’l Fed. of Indep. Business v. Sebelius (NFIB), 567 U.S. 519 (2012) (opinion of Roberts, C.J.). In that case, for the first time ever, a majority of the Supreme Court found an exercise of Congress’ spending power unconstitutionally coercive. To see how Judge Oetken distinguishes NFIB, see New York v. Mnuchin, 2019 WL 4805709, at *17 (S.D.N.Y. Sep. 30, 2019).