BY MICHAEL OLOHAN
OF PASCACK PRESS
PASCACK VALLEY AREA, N.J.—A state congressman is gathering bipartisan support for new legislation aimed at restoring New Jersey taxpayers’s ability to deduct nearly the full amount of state and local taxes they pay from their federal tax returns.
Under the federal Tax Cut and Jobs Act passed by President Donald Trump in late 2018, all state and local tax deductions were capped at $10,000 on federal returns, hitting Bergen County taxpayers hardest of all state residents, said U.S. Rep. Josh Gottheimer, of Wyckoff (NJ-5).
Gottheimer championed the workaround state law that allowed towns to set up municipal charitable trusts to allow SALT deductions over $10,000 for contributions to municipal services—but it was mostly disallowed by new Internal Revenue Service rules last summer.
Gotthemier said he would introduce bipartisan legislation, the Preserve the Charitable Tax Deduction Act, which allows residents to deduct 90 percent of SALT taxes exceeding the $10,000 cap on federal taxes.
The charitable trust fund law was signed by Gov. Phil Murphy last May but not a single municipality began a trust, especially when IRS issued rules restricted such deductions to only 15 percent of such municipal contributions from federal taxes.
‘Punched in the gut’
“Simply put, Congress didn’t give the IRS permission to interpret the tax law as they see fit, which they are trying to do by dismantling the charitable tax deduction. Their new, proposed cap is not in last year’s tax legislation—no one told them to do it,” Gottheimer said April 1 at a press conference in Fair Lawn. “Yet, now, they’ve gone ahead and punched us in the gut. Ironically, this time, they’re also hitting the 33 states who’ve been utilizing the charitable provision for decades.”
“As you know, gutting SALT has had a real impact on districts like ours. Here in Bergen, the average taxpayer claimed $24,783 in state and local taxes—more than half of which is now subject to double taxation under the new law,” Gottheimer said, standing with Fair Lawn’s mayor. In that municipality, 54 percent of residents pay more than $10,000 annually in SALT taxes.
In February, another group of legislators including Sen. Bob Menendez, U.S. Bill Pascrell, Jr. and Rep. Andy Kim introduced legislation to eliminate the $10,000 cap, which many critics—including Murphy and State Attorney General Gurbir Grewal said was Trump’s retribution against Democratic-leaning high-tax states such as New Jersey, New York, and California.
Initially when Trump signed the Tax Cut and Jobs Act in late December 2017, residents in numerous Pascack and Northern Valley towns crowded municipal finance offices to attempt to pre-pay 2018 taxes in 2017 to be able to fully deduct taxes. However, the IRS later ruled only tax payments billed by the town were eligible for deduction.
Gottheimer said the impacts of Trump’s 2017 SALT cap is more apparent this tax year—as more and more taxpayers file for 2018 by April 15—and middle-class homeowners are feeling the fiscal pinch.
When Murphy signed the charitable trust workaround law, Gottheimer released research showing 33 states using similar charitable trust arrangements permitting deductions for items including private school tuition.
‘Stifling economic growth’
“Higher taxes are stifling economic growth for our region and decreasing property values, which are already falling. According to Moody’s, because of the SALT cap, property values in New Jersey will be down by more than ten percent. A recent Zillow study drew a similar conclusion—since the Tax Hike [law], home values in low-SALT states are rising much faster than in states like ours,” charged Gottheimer.
Gottheimer said by “imposing a massive tax hike” on New Jersey families the new law took more than $600 billion “out of our pockets here in the SALT states” for tax relief in Republican-controlled states.
‘Stick it to us’
“Then, last year, when our state passed legislation to do exactly what their 33 other states had been doing for decades—to utilize the charitable tax deduction to provide relief to our residents—the IRS decided to step in and stick it to us, yet again. This actually happened. I know it sounds like it, but this is not an April Fools joke,” Gottheimer added.
New Jersey’s new charitable trust fund law—due to the IRS ruling reducing charitable deductions—has not been implemented, but Gottheimer said when the additional 90 percent deduction is restored, it will help to support community services such as law enforcement, parks and education.
A Gottheimer press aide said several towns had passed resolutions to set up charitable trusts but was not able to provide a list by press time.
Last spring and summer, after the law was passed, Northern and Pascack Valley mayors were hesitant to begin such a trust, many worried about the trust’s legality and likely additional costs, including local administrative costs.
Republican Mayor Carlos Rendo of Woodcliff Lake said then the state needed to pass legislation to allow taxpayers to deduct state and local taxes from state taxes and that legislation to do that was intentionally not being introduced by Democrats.
‘Tax relief on the back burner’
Reached April 2, Rendo said Gottheimer “should better spend his time getting the governor and legislature to focus on cutting spending. It seems like they have marijuana [legalization] on the front burner and tax relief on the back burner.”
“His efforts are misplaced,” Rendo said.
“Look, the IRS issued its rules and regulations, and because of that, it’s going to be difficult to get other congressmen on board” as sponsors, he added.
Last August, when new IRS rules effectively disallowed New Jersey’s new charitable trust fund law to provide a workaround, New Jersey joined with three northeastern states to sue the federal government and have the SALT cap declared invalid.
“For years, the IRS has allowed taxpayers to receive credits for donations they made to state and local governments and nonprofits. And that is a good thing because these programs encourage taxpayers to give money to natural resource preservation, hospitals, financial aid, schools, domestic violence victims, and more. Today’s proposal undermines all that. There doesn’t appear to be any good basis for the sudden change in policy except to make it more difficult for states like New Jersey to cope with the backward tax policies the federal government imposed on us last year,” Grewal said last August.
Grewal said then the new IRS ruling “is so focused on sticking it to the blue states that they’re willing to stick it to the red states, too. That hurts everyone, especially those who donate to charity.”