MARLBORO, N.J. — New Jersey Gov. Phil Murphy’s proposal to relieve the potential pain from the new federal tax law on those who pay the state’s sky-high property taxes is getting positive reviews, but it’s also being met with skeptics who wonder if it could succeed.
Murphy on Friday was in Marlboro Township, where the town’s mayor and others from nearby signed off on the first-term Democratic governor’s idea to let taxpayers pay property taxes to charitable funds. They could then continue to deduct the amount of the taxes on their federal returns since charitable deductions were kept intact under the 2017 law signed by President Donald Trump.
Under the new law, state and local tax deductions are capped at $10,000. It’s a big factor in New Jersey, which has among the highest rates nationwide of taxpayers who itemize deductions, with the average deduction at about $18,000.
The capped local tax deductions have mushroomed into a statewide political issue, with officials from both parties promising to do what they can to blunt the effects of the new cap, though it’s unclear exactly how the limit will shake out for taxpayers. That’s because while corporations got big tax breaks under the GOP plan, moderate- and low-income residents are also expected to see some breaks.
Murphy’s proposal plan has some wondering whether it could pass the IRS’s muster. Even Murphy sounded unsure.
“I can’t guarantee you success,” he said in the barn-shaped town hall Friday. “This is the right thing to do and it’s the right time to do it.”
Democratic Marlboro Mayor Jonathan Hornik praised Murphy for pushing the plan, but admitted that it’s unclear if the idea would have the desired effect — essentially preserving the state and local tax deduction and skirting new federal law.
“Will this idea work? I don’t know. I don’t. But how can we not try? Anybody who’s unwilling to try doesn’t belong in government,” Hornik said.
Republican Rep. Leonard Lance, in the neighboring 7th District, backed Murphy’s proposal and on Friday asked Murphy to sign off on similar legislation that would remove the separate state income tax cap on local taxes. Murphy’s administration didn’t immediately respond.
“The question would be whether the IRS would permit that,” Lance said. “I would work toward that end. But I don’t know what the IRS would say.”
The IRS didn’t immediately respond to a request for comment on Murphy’s plan.
Jared Walczak, a senior policy analyst at the conservative-leaning Tax Foundation, called the proposal creative, but indicated it’s unlikely to meet IRS muster.
“IRS and Treasury officials weren’t born yesterday. They will see right through these proposals, recognizing the contributions for what they are: payment of taxes,” he said.
Murphy said the state attorney general’s office has been looking at the issue and he thinks the state would be “on stronger footing” if New Jersey enacts a law approving the payment scheme. He also pointed to other states that offer tax credits for charitable contributions, including for private schools.
He also reiterated a call he made earlier in the week for state legislation to enact his proposal, which was floated by Democratic Rep. Josh Gottheimer earlier this year, and has been suggested in other states, like California.
Leaders in the state’s Democrat-controlled Legislature say they’re open to the idea, and Republicans embraced it too.
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