Cuomo Ups Fight Over SALT De­duc­tion Cap

The Bond Buyer - - News - By Brian Tu­multy

WASHINGTON – New York Gov. An­drew Cuomo has es­ca­lated his fight with the Trea­sury De­part­ment and In­ter­nal Rev­enue Ser­vice over pro­posed rules that would block state work­arounds of the tax law’s $10,000 cap on the fed­eral de­duc­tion for state and lo­cal taxes.

He sent a let­ter to act­ing In­ter­nal Rev­enue Ser­vice Com­mis­sioner David Kaut­ter ear­lier this week threat­en­ing to sue the agency un­less it with­draws the pro­posed rules.

The gover­nor also sent a let­ter to J. Rus­sell Ge­orge, Trea­sury’s In­spec­tor Gen­eral for Tax Ad­min­is­tra­tion, ask­ing him to in­ves­ti­gate whether Pres­i­dent Trump, Trea­sury Sec­re­tary Steve Mnuchin, or other ad­min­is­tra­tion of­fi­cials en­gaged in im­proper po­lit­i­cal in­ter­fer­ence in con­nec­tion with the rule­mak­ing.

Cuomo’s let­ter to the IG points to a Sept. 5 state­ment by Mnuchin in sup­port of an IRS clar­i­fi­ca­tion that the $10,000 SALT cap does not ap­ply to busi­ness-re­lated con­tri­bu­tions to char­i­ties or gov­ern­ment en­ti­ties for which they re­ceive state and lo­cal tax cred­its.

“The re­cent pro­posed rule con­cern­ing the cap on state and lo­cal tax de­duc­tions has no im­pact on fed­eral tax ben­e­fits for busi­ness-re­lated do­na­tions to school choice pro­grams,” Mnuchin said.

Cuomo in­ter­preted that state­ment as pos­si­ble ev­i­dence of po­lit­i­cal in­ter­fer­ence by Mnuchin in the op­er­a­tion of the IRS.

“The IRS de­ci­sion pro­tects 14 red states that have the school tax credit pro­gram,” Cuomo said Sun­day when he an­nounced that he’d sent the let­ters. “Of the top 10 states who would ben­e­fit, nine voted for Trump. So you have a clear pat­tern. You have a tax pol­icy de­signed first to hurt the blue states, that’s SALT. When they is­sue a reg­u­la­tion that might ac­tu­ally ef­fect the red states, they come back and they clar­ify that reg­u­la­tion to make sure the red states aren’t hurt.”

The IRS clar­i­fi­ca­tion, how­ever, in­volves a larger is­sue that was de­bated heat­edly by Democrats and Repub­li­cans on the House Ways and Means Com­mit­tee dur­ing the markup of the tax leg­is­la­tion en­acted in De­cem­ber.

Democrats ob­jected at that time to the abil­ity of busi­nesses to con­tinue to claim un­lim­ited busi­ness de­duc­tions for ex­penses such as prop­erty taxes while in­di­vid­ual tax­pay­ers wouldn’t.

Repub­li­cans on the com­mit­tee are ex­pected to ap­prove one of three bills mak­ing up Tax Re­form 2.0 on Thurs­day, which would make the cap per­ma­nent along with a $750,000 loan limit on the de­ductibil­ity of mort­gage in­ter­est and the de­ductibil­ity of in­ter­est on home equity loans.

The $10,000 cap on the SALT de­duc­tion and per­ma­nent lim­its on home mort­gage in­ter­est de­ductibil­ity would pro­duce $317.8 bil­lion over the three years from 2026-2028, ac­cord­ing to an es­ti­mate re­leased by the non­par­ti­san con­gres­sional Joint Com­mit­tee on Tax­a­tion Wed­nes­day.

JCT es­ti­mated an­other $498.8 bil­lion in rev­enue would be gen­er­ated from the per­ma­nent re­peal of per­sonal ex­emp­tions on fed­eral taxes. But even with those rev­enue pro­duc­ing pay-fors, the bill would in­crease the deficit by $630.9 bil­lion, the JCT es­ti­mates showed.

N.Y. Gov. An­drew Cuomo is threat­en­ing lit­i­ga­tion over pro­posed rules and ask­ing for probe.

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