A federal appeals court has rejected a bid by New Jersey and three other states to invalidate the congressional cap on deductions for state and local taxes.

The so-called SALT deduction offers some relief for residents of high tax states like New Jersey by allowing them to deduct state and local taxes on their federal income taxes. The Donald Trump administration championed a $10,000 cap on that deduction.

New Jersey's attorney general had argued congress did not have constitutional authority to impose that cap, and asked for it to be lifted.

A lower court rejected that argument. The U.S Court of Appeals for the Second District has upheld the lower court ruling.

Part of New Jersey's argument was the inequity produced by the SALT cap. With the highest property taxes in the nation, there was a disproportionate impact on the people who live here, as opposed to lower taxed states. It was a defacto punishment, the AG said, for New Jersey's tax policy.

However, in its ruling, the court not only rejected efforts to eliminate the tax cap, but also affirmed the rights of congress to pass laws that were inherently inequitable to the states.

The SALT deduction cap is not unlike the countless federal laws whose benefits and burdens are unevenly distributed across the country and among the several States. Congress may use its spending power to create incentives for States to act in accordance with federal policies as long as pressure does not turn into compulsion. - 2nd Circuit U.S. Court of Appeals

There remains some hope for tax relief in congress. New Jersey's congressional delegation has been lobbying hard for new spending bills to include modifications to the SALT cap, but what that might look like is unclear.

Congress and President Joe Biden have yet to come to agreement on how big the spending bills will be, and without those numbers, negotiations on SALT are difficult. New Jersey U.S. Senator Bob Menendez told bloomberg.com there was "support and concern about SALT," but without final budget numbers, they were at a standstill.

The non-partisan Joint Committee on Taxation has already estimated a two year repeal of the SALT cap would cost the federal government $178 billion in revenue. That would be problematic for democrats looking for ways to fund things like combating climate change, providing free college tuition and funding free childcare.

If the total budget is reduced, the revenue lost through lifting the SALT cap becomes more significant.

NJ towns that actually cut property taxes in 2020

New Jersey property taxes went up by $158 for the average homeowner last year, making the average residential property tax bill $9,111. Here are the municipalities that saw their average tax bill decrease.

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