Judge dismisses high-tax states' lawsuit against Trump tax deduction limits

A federal judge handed the Trump administration a win Monday, dismissing a lawsuit from states with high taxes.

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The lawsuit asked U.S. District Judge J. Paul Oetken to block the Tax Cuts and Jobs Act's limit on how much people can deduct in state and local taxes (SALT). The provision effectively raised the tax burden on citizens of high-tax states.

New York, New Jersey, Connecticut and Maryland brought the suit in July 2018, claiming the tax deduction limit was a way for the Trump administration to stick it to blue states. The judge ruled that the limit did not violate the 10th Amendment, which says that powers not delegated to the federal government in the Constitution are left to the states.

Annapolis, Maryland - State, Harbor, Color Image, Commercial Dock (iStock)

"The cap, again like every other feature of the federal Tax Code, is a part of the landscape of federal law within which states make their decisions as to how they will exercise their own sovereign tax powers," Oetken wrote.

"Because the States have failed to plausibly allege that the cap, more so than any other major federal initiative, meaningfully constrains this decision-making process, this Court has no basis for concluding that the SALT cap is unconstitutionally coercive," he continued.

The Tax Cuts and Jobs Act limited the state and local tax deduction at $10,000, which is below the average of what individuals claim in states like New York and Connecticut. Before the cap, the average deduction claimed in California, for example, was $22,000, according to Kevin de Leon, a Democratic member of the California state Senate.

As a result, wealthier taxpayers have left these states for no-income tax destinations like Florida.

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New York had the third-largest outflows of any state, with 452,580 people moving out within the past year. California, another high-tax state, had the largest outflow of domestic residents – with the highest proportion of people headed to Texas, Arizona and Washington.

New York's government estimated in February that tax payments were $2.3 billion below forecasts.

FOX Business' Brittany De Lea contributed to this report.