New Jerseyans feeling burdened by the new Trump tax provision that limits the deductibility of state and local taxes might find relief if proposed legislation is passed that would allow towns and schools to form charities that could accept tax-deductible “donations” in place of tax payments.
Bill S-1893 won approval in the Senate Budget and Appropriations Committee last week, even though the text of the bill had not yet been published.
“I’m not saying by any means that this is a long-term solution,” said Sen. Paul Sarlo, D-Wood-Ridge, who chairs the committee. “But we need to defend ourselves against the loss of the SALT deduction.”
Some senators, including Sen. Samuel Thompson, R-Old Bridge, who voted for it, doubt the scheme would pass muster with the IRS. “I’m not at all optimistic,” he said.
New Jersey was especially hard-hit by new federal tax rules that cap a taxpayer’s deductions for local taxes at $10,000 because the state already has the highest property taxes in the country. But speakers at the hearing disagreed over who would benefit.
Sen. Troy Singleton, D-Moorestown, noted that the new charitable deduction avenue could be viewed as a “reduction in liability.”
Sarlo and Senate President Stephen Sweeney, D-West Deptford, told the committee that they drafted the bill after being approached by Congressman Josh Gottheimer, D-NJ, who captured a long-Republican district in North Jersey in 2016. He stresses the voluntary nature of charitable deductions.
“Taxpayers can make voluntary contributions to these funds, for which they will receive an offsetting tax credit,” Gottheimer said in a statement on his website. “This structure effectively restores the benefit of the lost state and local tax deduction to the extent of the contributions for most taxpayers who itemize.”
Itemization is a crucial factor, said Gordon MacInnes, president of New Jersey Policy Perspective. “Because of the doubling of the standard deduction (on federal taxes), most people in New Jersey will not qualify for these charitable deductions. It’s going to be some wealthy people in Bergen County – in Alpine – who have local tax payments of $60,000 who would take advantage of this.”
The legislation is being “hastily considered,” MacInnes added, noting that it was ominous that U.S. Treasury Secretary Steven Mnuchin has called the idea “ridiculous.”
The average SALT deduction for property taxes in New Jersey is $17,850, almost $8,000 over the new cap. According to the Tax Policy Center, New Jersey pays the sixth highest percentage of federal income taxes in the nation, behind California, New York, Florida, Texas and Illinois.