Governor Dannel Malloy believes a multi-state lawsuit against the federal government has probably been strengthened by a recent Wall Street investor warning.
Moody’s Investors Service warns that the federal government’s crackdown on states that are trying to evade the $10,000 cap on state and local tax deductions would hurt the credit ratings of those high-tax states. Malloy says that’s the argument the blue states, including Connecticut, are making in their lawsuit.
Malloy says 83 percent of the tax deduction benefits in the Trump tax cut goes to the top one percent. “And one of the ways they pay for that is by penalizing taxpayers in states like Connecticut, and New Jersey, and Massachusetts, and Maryland. It’s patently unfair. It defies reasonable economic analysis, and ultimately I believe it will be undone.”
Malloy says if it’s not undone it will become more difficult for blue states to maintain their high spending on education and other local services because taxpayers would no longer be able to write off all their local taxes on their federal tax returns.
“All of the states that are impacted are states that spend more money on education, that state government spends more on education. So it really is in some cases a punishment for having a better educational system statewide than states that don’t help fund local educational expenses.”
In Connecticut the average local tax bill in 2014 was about $19,000, well above the $10,000 cap.
