New Jersey Democrats, including Gov.-elect Phil Murphy, think they’ve found a giant loophole in the new federal tax code and want to leverage it to allow homeowners across the state to keep deducting their property taxes, skirting a new $10,000 cap on such write-offs that was imposed by the law President Donald Trump signed last month.
The proposal, developed by Rep. Josh Gottheimer of Bergen County and unveiled Friday afternoon, would give local governments the ability to create new funds that would permit homeowners to pay their property taxes by making a charitable contribution. Residents would receive a credit for the amount paid to offset their bill, and then would be able to take a charitable deduction when they file their federal tax return.
Gottheimer, a rising star in the Democratic party in New Jersey, said he’s been looking at the idea for weeks and believes it presents one of the cleanest approaches to combating the federal tax changes, which some fear will cut home values by capping the state-and-local deduction.
“The tax-hike bill Congress passed last year is a ticking time bomb for New Jersey,” Gottheimer said at a press conference with Murphy and other Democrats. “But today, we’re proudly declaring New Jersey won’t shy away from a fight. We won’t be America’s piggy bank, and we won’t stand by and allow our economy to crumble.”
Murphy, who takes office Jan. 16 and wants to raise taxes on the state’s wealthiest residents, said he was adopting the proposal as his primary means of combating the changes from Washington, though he said legal action and other state-level policy changes remain on the table. The governor-elect vowed to do everything necessary to ensure the idea is implemented.
“We are all in on this,” Murphy said. “Not just this — we will continue to pursue all available means, legal, constitutional, tax code and otherwise. But this one has real legs and real precedent.”
Similar programs exist in at least 22 other states and have been backed by the IRS and found to be meet legal muster, according to Gottheimer, a former Microsoft executive who had been a speech writer for President Bill Clinton.
It’s also being considered elsewhere.
The idea has gained some traction in California, where legislation was introduced this week to create a state-level program with a similar effect. In New York, Gov. Andrew Cuomo said during his State of the State address on Wednesday that he is concocting legislation to “create additional charitable organizations” and, in a written message, said the state would “create new opportunities for charitable contributions to support public programs.”
Murphy had joined Cuomo and Gov. Jerry Brown of California on a conference calldenouncing the tax bill before it passed Congress, and has said he’s willing to join them in suing the federal government if there’s an opening to do so.
The details of the charity-approach envisioned in New Jersey remain murky. There is no clarity on whether the state Legislature will need to pass enabling legislation to give local governments the power to offer tax credits for the charitable contributions. The state is typically required to approve such municipal credits.
If legislation is required, Murphy said, he’ll work with Senate President Stephen Sweeney and the incoming Assembly speaker, Craig Coughlin, to ensure it becomes law. Executive action would also be in the cards, as could a more robust, state-level program to help local governments implement the changes.
Sweeney, a Democrat from South Jersey who has threatened to hold up Murphy’s plans for a millionaires tax because of the new federal tax code, said he had spoken to Gottheimer about his idea several times already and was “very supportive of it.”
“If we need legislation, we’ll do it,” Sweeney told reporters on Friday after holding a voting session in Trenton. “I would be willing to work on it.”
But the Senate president, who appears to have a chilly relationship with Murphy, was quick to note that he has plans to form his own committee to look at tax issues in New Jersey — including whether the federal tax changes should stop him from pursuing a tax on millionaires.
“I’m looking at our tax policy globally. I want to look at it all now,” Sweeney said. The federal changes “give us an outstanding reason to look at all tax policy in New Jersey and how we can make it work better.”
Local leaders from three towns in Bergen County — Fair Lawn, Park Ridge and Paramus — attended the Friday press conference and said they were starting to plot out how such a program would work in their communities to make it happen.
The New Jersey State League of Municipalities, which represents local officials across the state, said it was backing the proposal, though it, too, was unsure whether state law needed to be changed.
“Conceptually, we are supportive of any such program and appreciate the efforts of the Congressman and the Gov-elect to address the consequences of the federal tax changes,” Michael Cerra, the group’s executive director, said in an email. “We are currently researching the extent to which this currently authorized and whether any further legislative authorization is needed.”
Not everyone is optimistic about the idea.
The Tax Foundation, a national policy research group, has already taken a deep look at the concept and found such “proposals are inventive and in many respects quite interesting, but for both legal and practical reasons, they are unlikely to succeed.”
Steve Lonegan, a conservative firebrand who’s running in the Republican primary to challenge Gottheimer this year, said Murphy “punted on the opportunity to cut property taxes, in the hope that others will fix a problem that he is perfectly capable of fixing, but refuses to address.”
For the Democrats, who said they hope to make this a bipartisan issue in New Jersey, the discussion is about more than just a single tax issue: It’s about regionalism and a clash between red and blue states.
Before the bill passed out of the House of Representatives, Gottheimer said a Republican colleague had told him, “today’s the day we get to stick it to the Northeast.”
Rep. Bill Pascrell, who represents a nearby district and attended Friday’s press conference, was a bit more blunt.
“They have started a war with New Jersey and New York. Bad idea, Republicans,” he said. “They picked a fight with the wrong guys.”
Linh Tat and Jimmy Vielkind contributed to this report.