Earlier this month Phil Murphy and his Democratic henchmen in the NJ state legislature created what they call a “workaround” to the $10,000 cap on state and local tax (SALT) deductions that was enacted as part of President Trump’s tax reform package. The SALT deduction is popular in high tax states like NJ where the average taxpayer claimed a deduction of more than $18,000 against his taxable income last year. But it’s unfair to residents of low tax states who end up subsidizing NJ’s profligate spending local governments as they pay more in federal tax on similar gross incomes.
The scheme concocted by Murphy transforms property tax payments into “charitable contributions,” which remain fully deductible.
The new law (S1893) allows municipalities, counties and school districts to set up charitable funds to pay for public services. Residents who donate to the funds can receive a credit of up to 90 percent toward their property tax bills, and those contributions can then be written off as charitable deductions on their federal taxes.
Republicans warned Murphy that property tax payments aren’t really charity. Assemblyman Michael Patrick Carroll labeled it “tax fraud.” Treasury Secretary Steve Mnuchin called the idea “ridiculous.” And acting IRS Commissioner David Kautter expressed skepticism about it when addressing a congressional committee back in February.
Yesterday the IRS officially weighed in, and it doesn’t look like they’re going to let Murphy scam them.
But, on Wednesday, the IRS and Treasury signaled they could take a dim view of states taking this sort of action.
The agencies issued a notice saying that they plan to propose regulations to “help taxpayers understand the relationship between federal charitable contribution deductions and the new statutory limitation on the deduction of state and local taxes.”
“Taxpayers should be mindful that federal law controls the proper characterization of payments for federal income tax purposes,” the notice says.
That’s bureaucrat-eeze for “don’t do that.”
So of course Murphy immediately backed down and vowed to find a way to meaningfully reduce our state’s highest in the nation property tax burden.
Just kidding! He unleashed Josh Gottheimer and Bill Pascrell with threats of, wait for it, lawsuits.
“It’s Jersey. We’re ready for a fight,” said U.S. Rep. Josh Gottheimer, D-5th Dist., a leading proponent of efforts to use charitable funds as a way to evade the cap.
“It would give some relief to the taxpayers who are being screwed by the Republicans,” Pascrell said. “If the IRS rules it to be unlawful, we’ll have do something else and we’ll see them in court, guaranteed.”
If we’re being screwed by anyone, it’s NJ Democrats, who continually find new and destructive ways to separate us from our hard-earned money. Rather than trying to tamper down NJ’s tax burden Murphy is demanding more than $1.5 billion in new taxes for the upcoming fiscal year. Because Democrats are genetically incapable of cutting spending, but they’re very good at blaming Republicans for the problems they’ve caused.