The Supreme Court announced on Monday they wouldn’t be hearing a challenge to the ceiling on the state and local tax, or SALT, deduction, according to The Hill.
The ruling comes as a major blow to blue states, which have used the federal deduction to offset high taxes at a state and local level, as well as high spending.
The unsigned order came without any noted dissent.
As The Hill noted, it “effectively ended a legal challenge brought by a number of high-tax, Democratic-led states.”
“The Republican-led tax cuts capped at $10,000 the amount of state and local taxes that individuals could deduct from their federal income taxes, a move that effectively increased the tax burden on high-earners in states like New York and California,” they reported.
Some blue-state Democrats tried to get the SALT limits removed during budget negotiations last year.
However, while Dems from high-tax states like California and New York tried to raise the ceiling or have it eliminated, progressive Democrats and legislators from less tax-heavy states objected.
The move eventually stalled when West Virginia Democrat Sen. Joe Manchin officially opposed it.
The cap to the SALT deduction was one of the ways the Trump administration raised revenue in its 2017 tax-cut package. The SALT cap allowed the tax cuts to pass under congressional budget reconciliation rules, which state that no reconciliation legislation add more than $1.5 trillion to the federal deficit over 10 years.
However, four of the states most acutely affected — Connecticut, Maryland, New York and New Jersey — sued the federal government over the cap in 2018.
They argued the cap was congressional overreach and an infringement upon states’ rights.
The suit argued “a deduction for all or a significant portion of state and local taxes is constitutionally required because it reflects structural principles of federalism embedded in the Constitution.”
However, lower courts had ruled against them, and the Treasury Department urged the Supreme Court to deny the appeal.
“Congress has acted well within that power both in establishing, and in placing limits on, the deduction for state and local taxes,” the department wrote in court papers. “As the courts below observed, no constitutional provision compels Congress to provide any SALT deduction, let alone a deduction of a particular amount.”
And, as Howard Gleckman, an analyst with the Tax Policy Center, noted, the deduction mainly benefited high earners in blue states.
“Only about 9 percent of households would benefit from repeal of the Tax Cuts and Jobs Act’s (TCJA) $10,000 cap on the state and local property tax (SALT) deduction,” he said.
“More than 96 percent of the tax cut would go to the highest-income 20 percent of households. The top 1 percent of households, those making $755,000 or more, would receive more than 56 percent of the tax cut.”