Gov. Cuomo Plans to Sue Over New Federal Tax Law

By Mike Vilensky Features Dow Jones Newswires

New York Gov. Andrew Cuomo on Wednesday laid out a sweeping liberal agenda for the year, and said he would challenge in court a new federal law that may hurt states with high state and local taxes.

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A Democrat running for a third term, Mr. Cuomo gave a 90-minute annual State of the State speech at the capital's Empire State Convention Center, saying he aspires to a philosophy of "pragmatic progressivism" carved out by his father, late Gov. Mario Cuomo. He also laid out a list of issues he said were threats to the state, including the new federal tax law and a divisive political culture nationally.

But facing a $4 billion budget deficit, Mr. Cuomo didn't include some of the high-price projects he has in years past and instead stuck largely to social policy and partisan battles with national leaders.

"2018 may be the toughest year New York has faced in modern political history," the governor, 60 years old, said before a crowd of several hundred people, including most of the state Legislature and New York City Mayor Bill de Blasio. "Outrage is not enough. Enlightened government must seize the moment."

Mr. Cuomo, for much of 2017, was more reluctant than some of his fellow Democrats to attack Republican President Donald Trump. But he has recently seized on the tax law as hurting New York.

On Wednesday, he said his administration would sue the federal government over the tax law, saying it unconstitutionally discriminates against high-tax blue states. The law caps the amount of state and local taxes that filers can deduct from their federal taxes, deductions that have been key to New York taxpayers.

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"President Ford may have metaphorically told New York to drop dead in 1975, but this federal government is the most hostile and aggressive towards New York in history," he said. "It has shot an arrow aimed at New York's economic heart."

Republicans in New York have also voiced concerns about the tax law and how it might affect suburban real-estate markets. But on Wednesday some of them pushed back on Mr. Cuomo's response. "I don't see the legal basis," said Senate Majority Leader John Flanagan, a Long Island Republican, after the remarks, of the governor's planned lawsuit.

Part of Mr. Cuomo's plan to fight the tax bill was a pledge to work with lawmakers and tax experts on exploring wholesale changes to the state tax code. Additionally, Mr. Cuomo threw his weight behind closing the so-called carried interest loophole, a federal rule that benefits private-equity and hedge-fund managers and came under criticism from both parties in the 2016 presidential election. The provision allows much of the compensation for private-equity and hedge-fund managers to be treated as capital gains, which are taxed at a lower federal rate than ordinary income.

It wasn't clear Wednesday how Mr. Cuomo might affect the carried interest rule from the state level. A past New York legislative proposal sought to impose a state tax on part of a fund manager's profits, offsetting the carried interest break.

Mr. Cuomo's proposals were expected to be fleshed out in the coming weeks when he releases his budget proposal. On Wednesday, Democratic lawmakers largely signed on to Mr. Cuomo's plan while the GOP-led Senate expressed skepticism.

"There was a tremendous amount of focus on the federal government [in the remarks]," Mr. Flanagan said. "First, let's look at what we're doing in our own state."

Write to Mike Vilensky at mike.vilensky@dowjones.com

(END) Dow Jones Newswires

January 03, 2018 19:58 ET (00:58 GMT)