Playing defense, Gov. Murphy signed a bill that would let Jersey property owners outmaneuver the Trump administration’s $10,000 cap on so-called SALT, or state and local tax deductions, a cap which the governor said could hurt the 41 percent of New Jersey households who benefit from taking full deductions.
“And they will now lose an average of $8,000 in federal tax deductions. It is, to be clear, a de facto tax hike on countless New Jersey households,” said Murphy. “We know that President Trump and the leadership in Congress cooked this up to benefit the states that were with him, instead of treating everyone fairly.”
The new law will enable towns to reclassify property tax payments as charitable contributions by setting up specific charitable funds. Say you donate to the police department fund. You get a property tax credit for up to 90 percent of the donation that you can deduct on federal tax returns. It’s complicated, but state Sen. Paul Sarlo says the government will have your back.
“Whatever it takes. Seminars, meetings, hearings, we will set up the infrastructure quickly and make sure it’s soundproof, so that when our taxpayers come in they can start to make these charitable contributions and they could get back some of that SALT deduction.” he said.
The law takes effect in 60 days. It’s an idea that works for East Rutherford taxpayer Peter D’Errico, who resents the red state/blue state tax imbalance.
“Our federal money goes to states that don’t pay high taxes, and here we are now getting shortchanged on this, too,” said D’Errico. “If it’s available, yes, we’ll use all the tools that we can at our disposal.”
Gov. Murphy’s also all in because he’s proposed raising state taxes by almost $1.7 billion. That’s a much tougher sell if the feds start taking bigger chunks out of taxpayer wallets, especially if state revenues remain flat. And the charitable deduction tactic is no cakewalk. The U.S. Treasury Secretary Steve Mnuchin has called it “outrageous,” and Sen. Tom Kean Jr. predicts it’ll leave taxpayers “on the hook.”
“Because the IRS will never accept this type of workaround,” explained Sen. Kean, “It’s a pure governmental purpose, people like a police force or others, so it’s irresponsible for mayors to try to budget on this, the federal government will never allow it to happen, and it’s a workaround that says, very clearly, ‘we’re not going to obey federal law or reduce spending.'”
Kean is promoting legislation that would amend the constitution to impose a two percent cap on state spending increases. Gov. Murphy instead is promoting cost saving measures like shared services. Today, he appointed two former mayors as so-called shared services czars, Jordan Glatt of Summit and Nick Platt of Harding Township. And he predicted the IRS won’t target New Jersey taxpayers for using the charitable workaround because 33 other states use it, too, in some form.
“We think they would have to undo all those other precedents; that’s a pretty tall mountain to climb,” said Murphy.
State tax and treasury officials will write a how-to manual to guide towns that decide to offer this option to their taxpayers.