Murphy’s Tax Plan for NJ: Charity or Cheating?
Gov. Phil Murphy’s first move on property taxes isn’t to lower them, but to try to keep them fully deductible under the new federal tax law by letting them be made to new municipal government charities that would support local services.
Murphy first touted the concept five weeks ago, at an event with U.S. Rep. Josh Gottheimer. He promoted it again Thursday at the Masonic Temple in Trenton at the winter summit of the New Jersey Conference of Mayors, where legislative leaders expressed their support.
“Now certainly this is no replacement for meaningful property tax relief. I get that. We all know that there are no easy fixes,” Murphy said. “But while we commit to the long-term effort, let’s also commit to providing common sense and immediate relief for our taxpayers.”
The idea wouldn’t reduce what property owners owe for local, county and school services.
If a couple is billed $10,000 in property taxes, they could pay a portion of that, or perhaps even all of it, to a municipal charity. Let’s say they pay $3,000 through the charity. They would then get a dollar for dollar reduction in their property tax bill and would pay the tax collector $7,000.
For conversation’s sake, let’s say that couple pays $3,000 in state income taxes. The $10,000 combination of income and property taxes would be the maximum amount they’re allowed to deduct from their income when calculating federal taxes, starting this year. But if they want to itemize their taxes, they’d now have an extra $3,000 charitable contribution – made to their town.
The $10,000 cap on SALT deductions is among the driving reasons New Jersey and other high-tax states would see smaller benefits from the federal tax reforms than other states.
“This gut punch from Congress and President Trump should spur us to action to seek long-term reforms in our property tax system,” Murphy said. “But at the same time, our residents want and need immediate relief that will not only help preserve their pocketbooks but also the relative values of their biggest investment, namely their homes.”
Senate President Stephen Sweeney, D-Gloucester, said lawmakers have been developing legislation allowing for such funds for more than a month. He was a little miffed that Murphy called for legislation on the issue at a public forum, rather than directly in a phone call.
“There’s a question with the IRS, and I guess we won’t know until we do it. But it’s worth the effort to see if we can make it work,” Sweeney said.
Charitable deductions like the one Murphy is floating exist in 33 states, the governor said. In most cases, it allows residents in conservative-leaning states to deduct private-school tuition payments by making them indirectly through a charity.
“It’s pretty hard for the federal government to allow people to deduct in red states for a public purpose and then not allow us to do it,” Sweeney said. “It really puts the IRS in a position: Either take it all out, or you’ve got to leave it all in.”
Assembly Minority Leader Jon Bramnick, R-Union, said he’s on board with any strategy to get property owners a bigger deduction.
“Good idea. What’s the down side? I’m just afraid that when states start going it, the IRS may try to change the rules or Congress may try to change the rules,” he said.
Bramnick said he wasn’t concerned the change would take the place of more substantive action related to property taxes.
“I’ll take whatever I can get now, and I certainly will work towards the greater goal,” he said. “But I’m not going to ignore a possible way of taking a deduction because it’s a short-term medicine. No, I like it.”
Murphy will be in Marlboro Friday with a bipartisan group of mayors of towns planning such charities.
In early January, he did an event at which the mayors of Fair Lawn, Paramus and Park Ridge said they were planning to proceed with municipal charities.