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Honoring Thy Father, In Court

Andrew Cuomo
New York Gov. Andrew Cuomo. Photo by Cpt Mark Getman, New York Guard State Defense Force,
courtesy the New York National Guard.

New York Gov. Andrew Cuomo’s merits as a chief executive are debatable, but I have to credit him with being a son who honors his father at every opportunity.

The recently opened $3.9 billion Governor Mario M. Cuomo Bridge is named for the current governor’s late father, who served as New York’s governor from 1983 to 1994. The honor is nice, if a bit ironic, since the bridge it replaced – the Tappan Zee span across the Hudson River, part of the New York State Thruway system – was not something with which Mario Cuomo visibly concerned himself. The Tappan Zee was built in the 1950s, but in contrast to much older bridges like the Brooklyn (which opened in 1883) and the George Washington (whose original upper deck opened 1931), its original design was only expected to be functional for 50 years. During the first Gov. Cuomo’s tenure, it began a steady slide into obsolescence that warranted its eventual replacement during the tenure of his son.

The younger Gov. Cuomo also honors his father’s legacy of taking specious legal positions when it suits his political purposes. In 1984, the then first-term first-Gov. Cuomo signed a law that allowed “wine cooler” products containing up to 6 percent alcohol to be sold in the state’s grocery stores – but only if the products were made entirely with New York grapes. It was a payback of sorts to the upstate farmers and rural communities who had helped Cuomo win his party’s nomination over New York City Mayor Ed Koch in 1982. But it also blatantly discriminated against out-of-state beverage producers, a fact of which Mario Cuomo was well aware. His attitude: “So sue us.”

A California producer, Loretto Winery, did exactly that and won. U.S. District Judge Charles L. Brieant, Jr. observed in his ruling that New York winemakers faced a variety of disadvantages compared to competitors in California. Brieant wrote: “Since confronting these disadvantages and inequalities head-on was understandably difficult for the state government, it is natural that there would be a strong temptation and incentive to carve out a protected market for a wine product made in Milwaukee or anyplace, from 100% New York grown grapes. However understandable the temptation, surrendering to it is unconstitutional.” The 2nd U.S. Circuit Court of Appeals subsequently upheld the decision in Loretto’s favor.

And so, having earned their political brownie points by making this warm but useless gesture to upstate communities, Cuomo and New York’s compliant legislature changed the law the following year to allow grocery store sales of wine cooler products regardless of their source.

This brings us back to the current Gov. Cuomo, who is seeking a third term this year and who many observers believe is eyeing a White House run in 2020. Cuomo is the frontman for a four-piece band of Northeastern states that recently went to court to try to block last year’s federal income tax overhaul – specifically, the provision limiting personal deductions for state and local taxes to $10,000 per year.

The plaintiffs argue that the new federal law was politically aimed against the affluent victims – excuse me, taxpayers – who foot the bill for bloated governments and unsustainable public pension promises in New York, New Jersey, Connecticut and Maryland. This, say the governors and attorneys general of these four allegedly downtrodden states, constitutes illegal “double taxation” of income and unconstitutionally interferes with their right to appease public employee unions. These dramatic claims are based on a section of the tax code that simply requires taxpayers in New York to pay exactly the same federal tax as a taxpayer with the same income and permitted deductions in a highly developed but more tax-efficient state like Texas, or in a much poorer place like Tennessee or Nevada.

The plaintiffs are seeking “declaratory and injunctive relief,” rather than damages or any form of compensation. In other words, the states want the courts to declare the cap on deductions is unenforceable. Beyond the claim that the law was willfully aimed to hurt their residents in particular, the states also argue that tax reform will artificially depress home values and “deliberately seeks to compel certain States to reduce their public spending.”

Either for reasons of fiscal prudence or legal self-respect, even California – homeland of the Trump administration resistance, as well as home to some of the nation’s highest taxes – hasn’t signed on to this waste of judicial resources. Neither has Illinois, another high-tax state, and one that is drifting much too close to fiscal ruin for comfort already. At least, neither has signed on yet.

After eight years in which former President Barack Obama placed many left-leaning judges on the federal bench, there is a very slight chance that this case could survive an early motion to dismiss. But the possibility of its ultimate success is zero. Not close to zero. Zero.

You might think these rebellious states could win at least a moral victory by delaying enforcement of the new limits for a year or two, perhaps long enough for a change of control in Washington. But the prospects for this, too, are zero or something very close. There is a specific section of federal law – Section 7421 of the Internal Revenue Code – that prohibits courts from entertaining any suit “for the purpose of restraining the assessment or collection of any tax [...] whether or not such person [bringing the suit] is the person against whom such tax was assessed.” There are a few exceptions to this rule, but they do not apply in this situation.

The way the tax laws are set up, in most cases a taxpayer must pay tax and then sue for a refund, or else bring a suit in Tax Court after the government issues an assessment for the disputed tax. No such assessments have been made, because the law only took effect this year. Once the government makes such assessments against taxpayers who claim excess deductions, the states in the new rebel alliance will not be parties to the ensuing litigation. They can certainly provide legal support or seek permission to intervene or file friend of the court briefs, but their chances of prevailing remain nil.

Not that their ultimate success actually matters. For Cuomo, merely opposing Republican policies in such a high-profile way is useful during a Democratic primary campaign against left-wing actress Cynthia Nixon, and it sharpens his liberal bona fides for a 2020 presidential bid. Into the bargain, the action honors his father’s view of the law as a means of achieving electoral success, whether the positions he argues are meritorious or not.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s recently updated book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us,” and Chapter 4, “The Family Business.” Larry was also among the authors of the firm’s book The High Achiever’s Guide To Wealth.

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