Democrats eye loophole around GOP tax deduction limits

“They have started a war with New Jersey and New York. Bad idea, Republicans. They picked a fight with the wrong guys,” said Rep. Bill Pascrell.

A battalion of New Jersey Democrats, including Governor-elect Phil Murphy, vowed to fight back against the GOP tax reform measure that capped state and local tax, or SALT, deductions at just $10,000. Their counter-offensive: make New Jersey’s stratospheric property taxes completely deductible again by transforming them into charitable tax credits.

“We are all in on this. Not just this, we will continue to pursue all available means. Legal, constitutionally, tax code and otherwise. But this one, we believe, has real legs and real precedent,” said Murphy.

Rep. Josh Gottheimer is leading the charge. Under this proposal, each town would create a charitable fund that would give tax credits to offset property taxes paid by residents there. Say, for example, you live in Fair Lawn.

“Instead of paying $13,000 in property taxes, that family in Fair Lawn can make a charitable contribution of the $13,000 to the Fair Lawn General Charitable Fund. So they pay their property taxes into the charitable fund, and if the town provided a tax credit for all or part of that contribution, their costs could be mostly or fully offset by the tax credit,” said Gottheimer.

He said New York and California are already considering similar measures. The issue is critical in New Jersey, a state with the nation’s highest property taxes. After Congress passed the GOP tax bill, New Jersey residents lined up to pre-pay at least the first two quarters of their 2018 property taxes. But, they want a permanent rescue, and three mayors on Friday said they’d give this charitable credit proposal a shot.

“Seems like a no-brainer. And if this is an opportunity to save our taxpayers money, albeit at the federal level, I have to be on board with that,” said Paramus Mayor Rich LaBarbiera.

“We are about to start our budget discussions this month, so I will be bringing this. Our council members are sitting right here, so we will discuss this during our budget sessions,” said Mayor Lisa Swain of Fair Lawn.

Gottheimer noted 22 other states already use a similar loophole to give their residents all kinds of tax breaks with the IRS’s blessing.

“The good news is, the IRS has already ruled on a version of this, and has given it a thumbs up,” said Gottheimer.

The details are complicated, but some towns, including Fair Lawn, want to enact this proposal by their next budget cycle.