The Republican Tax Plan; Will Connecticut Sue?
HARTFORD, CT — Will Connecticut join other “blue” states in considering legal action against the Tax Cuts and Jobs Act passed by Republicans in late 2017?
The governors of New York, New Jersey, and California have been vocal about their desire to pursue legal action regarding the bill’s $10,000 cap on state and local taxes as a deduction, but Gov. Dannel P. Malloy has not signaled which direction he’s leaning.
New York Governor Andrew Cuomo indicated in his Jan. 3 state-of-the-state address that New York would pursue legal action and called the cap on state and local tax deductions “an assault on New York.”
“By gutting the deductibility of state and local taxes, the law effectively raises middle class families’ property and state income taxes by 20 or 25 percent, and undermines a critical foundation of state and local government finances in New York and across the nation,” a statement from Cuomo’s office reads. “New York is already a top “donor state” in in the nation — contributing $48 billion more annually to the federal government than it gets back — and under the new law the state will pay an additional $14 billion per year.”
The statement indicates that Cuomo considers elements of the bill unconstitutional and will challenge it in court. He will also participate in a national “repeal and replace” campaign against the bill and examine how to possibly shift state tax policies.
Jaclyn Severance, director of communications for the Office of Connecticut Attorney General George Jepsen, declined to comment about whether Connecticut would pursue legal action regarding the plan.
But Leigh Appleby, a spokesperson for Malloy, didn’t rule it out.
“Like many states negatively affected by Republican tax plan, Connecticut is exploring a number of options to protect middle-class residents from burdensome and unnecessary tax increases,” he said. “That could potentially include legal challenges or legislative changes.”
But Professor Richard Pomp, a tax expert with the University of Connecticut School of Law, expressed skepticism about Cuomo’s statement and legal strategy.
“These lawsuits are creative but tilting at windmills,” Pomp said. “The federal government can do what it wants, even if it has a disproportionate impact on certain states. After all, Connecticut pays more in taxes than what it receives back and no one has ever thought that was unconstitutional.”
He described the current situation as an opportunity for Connecticut to examine its corporate tax rates, combined reporting, tax credits and other elements of the state tax structure. He said that’s where there’s a chance for real reform.
“The legislature should immediately impose a moratorium on corporate investment tax credits and incentives, and not reinstate these or not adopt any new ones unless they are approved ahead of time by a panel of disinterested tax experts,” Pomp said. “Almost all of these incentives cannot survive a cost-benefit analysis. The legislature is struggling to cut critical programs and no one is focusing on these corporate handouts.”
He also expressed disdain for the bill in general, adding that corporations did not need a tax rate decrease to encourage capital investment.
“Even if it did not directly impact Connecticut, which it does, it would still be an abomination,” Pomp said. “Corporations are sitting on record piles of cash in a low-interest environment. They are quite capable of expansion if they thought there was a reason to do it.”
He added that higher education was a better way of stimulating startup business growth than tax cuts or other tax-related incentives.
“Most startups are created where the founders went to school or where they live,” he said. “Build up the type of programs at our colleges and universities that will attract the next generation of Bezo’s and the start-ups will follow.”