Defiant New Jersey Democrats said Friday that they are moving ahead with a legally-dubious plan to let residents make charitable contributions in lieu of property taxes, promising to vote on the bill in the state Senate on Monday and threatening to take the fight to court if necessary.
The bill (S1893) is designed to be a workaround to the new federal tax law that capped the state and local tax deduction at $10,000, a move that Democrats say will harm high-tax states like New Jersey, which has the highest property taxes in the nation.
The legislation would effectively allow homeowners to keep deducting their property taxes by calling those payments charitable deductions. Under the bill, local governments would be permitted to set up charitable funds for specific public purposes—from police to parks—that residents could pay into and get a credit of up to 90 percent toward their property tax bills. Those contributions could then be written off as charitable deductions on federal tax bills, officials said.
It’s unclear whether the plan withstands legal scrutiny.
U.S. Treasury Secretary Steven Mnuchin has called the proposal “ridiculous.” Last week, Acting IRS Commissioner David Kautter told a congressional committee that charitable contributions can only be deducted if “the primary purpose of the contribution is donative, which is a disinterested and detached interest of generosity.”
During a news conference in Paramus, Senate President Steve Sweeney said his chamber would vote on the bill Monday and said he expected the Assembly to eventually vote on it too.
Gov. Phil Murphy, a Democrat, has publicly promoted the proposal.
“They already screwed us in Washington,” said Sweeney (D-Gloucester), a sponsor of the bill. “They already put the screws to New Jersey. We have nothing to lose. We think we are on strong footing. But I think people expect us to fight for them.”
Democrats dared the IRS to reject their plan, noting similar programs exist in 33 other states. Rep. Josh Gottheimer (D-5), who came up with the idea, said he is confident in the plan after consulting with legal scholars and accounting experts. He said he brought it up during a meeting with Kautter.
“The commissioner knew that a well-designed program will be very hard to rule against without killing the programs in the other 33 states,” Gottheimer said. “They can’t just kill ours and not the 33, again in mostly red states. I think they’re in a bit of a pickle here.”
Senate Budget Chairman Paul Sarlo, a sponsor of the bill, went even further, suggesting New Jersey would sue if the IRS shot down the state’s plan.
“We’re going to force [the IRS] into a corner to make a decision,” he said. “And, quite frankly, if they don’t side with New Jersey, we’re going to go after those 30 other states legally. We’re going to go the Supreme Court, and we’re going to fight those other 30 states that are taking advantage.”
The Senate bill advanced out of committee on Feb. 15, the same day it was introduced. The legislation is sponsored in the Assembly by Assemblyman John McKeon (D-Essex), but the bill has not yet been referred to a committee.
