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BY MICHAEL OLOHAN
OF NORTHERN VALLEY PRESS
Two U.S. congressional representatives and a local mayor—all longtime advocates of starting local charitable trusts to skirt the new $10,000 federal limit on state and local tax deductions—have decided to fight the Internal Revenue Service’s ruling to disallow New Jersey’s recently passed workaround law.
Recently released IRS data indicates Bergen County taxpayers will suffer the biggest economic impact in the region from the ruling.
The IRS issued rules in August—now open to public comment—to disallow local charitable funds created so taxpayers could contribute tax payments and receive equivalent federal deductions, thus skirting the $10,000 cap on SALT (State and Local Tax) deductions.
The new limit was established by Republican party line passage of President Donald Trump’s Tax Cut and Jobs Act effective Jan. 1.
U.S. Reps. Bill Pascrell (D-9) and Josh Gottheimer (D-5)—and Park Ridge Mayor Keith Misciagna, who stood with Gottheimer to advocate for such workarounds—all vowed to fight the Trump Administration’s ruling making such trusts impossible.
Gov. Phil Murphy signed the workaround tax bill in May.
Making matters worse, said Gottheimer, the IRS released data showing that 47 percent of Bergen County taxpayers used the SALT deduction, deducting a total of $5.4 million on property tax bills that averaged at $24,783 in 2016. Gottheimer said this was the highest SALT deduction rate statewide.
“The new IRS numbers just prove what we’ve been saying all along: the Tax Hike Bill jacks up taxes significantly on New Jersey families, and Bergen County will be hit the hardest. Any new effort to gut SALT permanently should be voted down because it’s a raw deal for so many Americans, including New Jersey. We need to be cutting taxes here in North Jersey—not burdening our families and businesses with more federal tax hikes,” said Gottheimer Sept. 7 in a statement, highlighting the impact on Bergen County residents.
In mid-July, the New Jersey Attorney General’s Office joined New York, Connecticut and Maryland in filing a lawsuit against the federal government “to prevent [it] from enforcing the SALT deduction cap and to have the cap declared invalid.”
The suit states that SALT deductions have “historically been recognized under the Constitution and that a deduction cap “significantly increases” New Jersey tax liability.
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Grewal: ‘Fight back’
Following the IRS ruling, New Jersey Attorney General Gurbir Grewal charged the state was “ready and willing to fight back…there doesn’t appear to be any good basis for the sudden change in policy except to make it more difficult for states like [us] to cope with the backward tax policies the federal government imposed on us last year.”
Pascrell, the state’s only House member on the Ways and Means Committee, said that the IRS ruling had “pulled the rug out from under us once again.”
“Trump and congressional Republicans have made sport in trying to hurt New Jersey and citizens in the Northeast. Angry at those places that didn’t support Trump in 2016, they want to shake down ‘blue’ states for cash. In the failed GOP tax scam, Republicans stole a crucial lifeline for our state’s taxpayers that has been around since the Civil War,” charged Pascrell following the IRS move to prohibit New Jersey’s charitable trust fund workaround law.
“The administration had been content to allow charitable deductions to be used in similar ways in other states—until now. That Trump wants to block our state from seeking relief to their bad policies is an outrage. None of us will take it lying down. We promised them we would see them in court if they tried this, and I am already consulting with Gov. Murphy and my colleagues on our options, including studying tax solutions passed by other states. Trump and [U.S. Treasury Secretary Steven] Mnuchin can’t push New Jersey around to score cheap political points,” Pascrell said.
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‘Politics at its worst’
Park Ridge Mayor Keith Misciagna said the IRS’s ruling to prevent New Jersey to allow municipalities to create charitable trusts to evade the $10,000 SALT cap “is politics at its worst.”
Misciagna said the federal cap limit hurts North Jersey taxpayers, especially who are trying to deal with large corporations leaving the area.
“The shame of the matter is a lot of states were taking advantage of this [charitable deduction] loophole, and now this unfairly taxes New Jersey residents,” Misciagna said.
He said now corporations are moving to “red [Republican] states…and it’s time for the federal government to recognize this. We are trying to stop corporations from leaving our area,” he noted. Miciagna said residents “continually pay more in taxes than we get back.”
“People should be angry and I’m angry about this. It’s time for them to realize that we need a break here in New Jersey and it’s a shame what they’re [IRS] doing to us,” he said.
Misciagna was an early and vocal advocate for Gottheimer’s proposed workaround proposal.
“Legally, we should do everything in our power to combat this. Congress is hurting those not in power, we’ve always paid our taxes here in New Jersey. This (workaround law) was not a break for us. It was just to keep us from getting taxed doubly,” Misciagna said.
Bergen mayors react
Alpine Mayor Paul Tomasko, president of the county League of Municipalities, said the IRS “invalidation” of the SALT cap workaround means “it is being put on the shelf. If nothing else it provides us the ability to move forward without wondering how we would ever be able to implement this, which in certain instances might require additional hires just to implement this,” he added.
“It would have been an administrative nightmare,” said Tomasko Sept. 12, during a League meeting in Hackensack. “What we appreciate, at least for the time being, is that there’s clarity. We wouldn’t be adverse to seeing tax relief for our property owners but we have concerns about how this might be administered.”
“Shared services are a partial antidote to increasing property taxes. And we’re continually looking for ways to drive costs out of our operation,” said Tomasko, reacting to the IRS nixing New Jersey’s charitable workaround.
Tomasko told League members earlier that a recently released report convened by State Senate President Stephen Sweeney to reduce local costs failed to mention reinstating the 2 percent interest arbitration cap on police/fire salaries, sensible affordable housing legislation, returning energy receipts to towns, and unfunded state mandates such as stormwater management rules. The mayors’ group called for renewing the interest arbitration cap in 2017.
In May, most area mayors surveyed said they had adopted a “wait and see attitude” while the IRS considered whether to allow New Jersey’s charitable workaround law.
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Rendo: ‘Frivolous litigation’
Woodcliff Lake Mayor Carlos Rendo, who advocated a state government audit as a candidate for Lieutenant Governor in 2017’s gubernatorial race, said Gov. Murphy should perform an audit rather than waste money filing a lawsuit against the federal government to fight a SALT deductions cap. He called the state lawsuit “frivolous litigation.”
“You can’t avoid paying taxes, that’s the bottom line, and the IRS ruled that way. This state should concentrate on reducing their own taxes. Clearly this scheme is not acceptable to the IRS,” Rendo said.
He said the state should consider two Republican-proposed bills to allow taxpayers to deduct SALT taxes above $10,000 from annual state taxes.
Rendo said the state Attorney General lawsuit “is really a political move on their part. No one has any plans to reduce taxes,” he said.
Rendo also called for renewal of an expired 2 percent interest arbitration cap to help local taxpayers, noting last year’s Kim Guadagno-Rendo gubernatorial ticket highlighted reinstating the cap as a top priority.
Ruocco: ‘Rethink some of it’
Hillsdale Mayor John Ruocco said when Congress eliminated the SALT deduction cap, “it didn’t strike me as reasonable” but noted “they simply made the change and now suddenly we all have to adapt to it.”
He said it made more sense to have a “phase-in period” over a period of years rather than imposing such an immediate change.
“If they had done it over a five-to-10 year period, they would have adjusted to this over a period of time…it has an effect on states that have high property taxes,” noted Ruocco.
“I think it just comes down in the end how much do you want to tax the residents of your state for all these other services,” said Ruocco. He noted Gov. Murphy’s non-renewal of the 2 percent interest arbitration cap as a likely property tax driver.
“We’re not planning to do anything at this point…if the state is going to push it they’ll probably have to rethink some of it,” said Ruocco of the charitable workaround law.
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