The Independent View: NY Senator Hopes to Kill IRS Rules on State and Local Tax Deductions

New York Senator and Minority Leader Chuck Schumer (D-NY) hopes to Kill IRS Rules on State and Local Tax Deductions.

Beating the Federal Cap on the Deductibility of State and Local Taxes has proved Difficult for New York Policymakers, whose Attempts to Create ways to Circumvent it were Undercut by a 2019 IRS Regulation.

While the Village of Scarsdale and a Coalition of Municipalities and School Districts attempts to Invalidate the IRS Regulations in Federal Court.

The Deductibility of State and Local Taxes (SALT Deductions), was capped at $10,000 by the 2017 Tax Cuts and Jobs Act.

Schumer said he will Invoke the Congressional Review Act, which gives the U.S. Congress the Power to Nullify the IRS Rules.

The Congressional Review Act is a law that was enacted by the United States Congress under House Speaker Newt Gingrich as Subtitle E of the Contract with America Advancement Act of 1996 and signed into law by President Bill Clinton on March 29, 1996. The law empowers Congress to review, by means of an expedited legislative process, new federal regulations issued by government agencies and, by passage of a joint resolution, to overrule a regulation. Once a rule is thus repealed, the CRA also prohibits the reissuing of the rule in substantially the same form or the issuing of a new rule that is substantially the same "unless the reissued or new rule is specifically authorized by a law enacted after the date of the joint resolution disapproving the original rule" (5 U.S. Code § 801(b). Congress has a window of time lasting 60 legislative days to disapprove of any given rule by simple majority vote; otherwise, the rule will go into effect at the end of this period.

Schumer said that invoking the CRA is akin to Declaring a Policy Emergency. Schumer said the CRA Resolution would Not be Bound by the 60 Vote Rule used by Senate Republicans to Filibuster Legislative Matters they Oppose. "That gives us a better chance for passage," he said.

Schumer said the 2017 Tax Reform Bill was “a mean and nasty move to help the wealthiest people, and should be undone.”

At Issue are the Charitable Funds that the State of New York and several Municipal Governments set up to Circumvent the Federal Cap on Deductibility. Under those Plans, Property Owners would make Charitable Donations to the Funds, which would Issue Tax Credits Equal to between 90% to 95% of One’s Tax Liability. The Donations to the Funds would be Tax-Deductible.

Such Tax-Credit Programs have long been Used in the South and Midwest to Fund Private School Education, with Donors in some States receiving Tax Credits Equal to 100% of their Donations.

The Village of Scarsdale, the Scarsdale Board of Education, Town of Rye, and Westchester County, had setup Charitable Funds before the IRS Issued its Proposed Regulation that made the far less Beneficial to Taxpayers. The Funds were Shut Down after the Rules were Finalized.

The Cap was put in place by Congress in 2017 to provide more Income to the Federal Government as Legislators looked for Ways to Blunt the Tax Bill’s Impact on the Federal Deficit. The Bill provided Huge Tax Cuts for U.S. Corporations while also Lowering Marginal Tax Rates for a Wide Swath of the Taxpaying Public.

Schumer Acknowledged that Nullifying the IRS Rule would mean Less Revenue for the Federal Treasury, which may Require Rewriting Parts of the Tax Code. But he also said it would be Disingenuous for Republicans to Insist on making up for the Lost Revenue when the Federal Tax Bill will lead to the Loss of $1.5 Trillion. “Our friends will have a lot of nerve to say that for this, and not the $1.5 trillion tax cut for the wealthy.”