Why Gottheimer’s charitable deduction plan has new backers — and chance to give N.J. tax relief

By Tom Bergeron
New Jersey | Apr 2, 2019 at 2:13 pm
Editor’s Desk

U.S. Rep. Josh Gottheimer seemingly has been calling out all the states that get more back from the federal government than they give in taxes since he was elected to his House seat from New Jersey’s 5th District in the fall of 2016.

“Moocher States,” he has called them.

Now, he calls them something else: friends.

Gottheimer, who has never given up in the fight against the $10,000 state and local tax cap that was part of President Donald Trump’s new tax bill that was passed at the end of 2017, is finding a lot more of his colleagues are interested in the issue after a provisional ruling by the IRS last summer hurt New Jersey’s efforts to do an end-around.

The IRS — in what Gottheimer calls a regulatory overreach — blocked the state’s effort to count state and local taxes (aptly named SALT) as a charitable contribution. In doing so, the agency also hurt the 33 other states that have been using this provision for tax relief for other reasons.

On Monday, Gottheimer announced he soon will be introducing the “Preserve the Charitable Deduction Act.”

The act will enable New Jersey to count state and local taxes as charitable contributions, as well as restore similar plans in other states.

“We have some interesting allies in the fight,” he told ROI-NJ. “It’s just not just New Jersey, New York and Connecticut and some of the states that were really affected by the gutting of SALT. It’s all these red states that have been utilizing the charitable tax deduction now for decades.

“You have 33 states that have been utilizing this provision for decades. A lot of them have been getting 100 percent charitable deductions on certain things, such as tuition to private schools. Now, the IRS has said to them, ‘We’re going to cap it out at 15 percent.’ That’s a huge hit for them.

“It’s not just us, in New Jersey, where we passed new legislation, but now all these states that are utilizing it for decades to provide relief to their residents are getting hit, too.”

It’s made for interesting conversations in the past few months.

“Suddenly, I’m talking to some of my colleagues in the Moocher States who just woke up and said, ‘Wait a second, this is going to affect my constituents,’” Gottheimer said. “This is a regulatory overreach from the IRS. That’s why they are in a bit of a jam.

“The IRS now realizes that, if they’re going to take away the charitable tax deduction there, they can’t just pick a New Jersey, they have to go after the other states, too.”

Gottheimer said the crux of the issue is constitutional.

“Simply put, Congress didn’t give the IRS permission to interpret the tax law as they see fit, which they are trying to do by dismantling the charitable tax deduction,” he said.

“Their new, proposed cap is not in last year’s tax legislation — no one told them to do it.”

The impact of the tax bill is being felt in New Jersey this tax season.

Gottheimer estimates the new rules have cost New Jersey taxpayers $668 billion, money that could be put back in the local economy.

And, while this fight seemingly is about individual taxes, you can be sure businesses are watching it closely, too.

Companies that already are struggling to bring employees here — or justify moving here — because of the high cost of living certainly didn’t need this added on to the pile of reasons the state struggles to be affordable.

The New Jersey business community, Gottheimer said, cannot figurately afford having a cap on SALT deductions.

“I’m very concerned about its impact (on the business community),” he said. “Last year, we had the largest outmigration in the country. It’s a huge problem.

“I think we have to do everything to get tax cuts to these folks. And we need to cut unnecessary regulations to help the private sector expand and build in a responsible way.

“We’ve got to find a way to make it more affordable. We’ve got a lot of the right ingredients, but we have to address the cost side of the equation.”

His bill, he said, will help do that. But don’t expect it by tax day in 2019. Gottheimer is aiming to have new regulations in place a year from now.

“What we’re doing now is just building cosponsors,” he said. “I’m visiting with some of my colleagues who I’ve been talking about this now for a couple of months and actually sitting down with them. You have to work with the legislative council doing the actual bill text, which takes time.

“I think this could be a bipartisan piece of legislation and I think it’s going to be a fight going into the next tax season. That’s my goal: to make sure we resolve this and get some certainty for people.”

Another goal: Make sure the bill has bipartisan support, so it is veto-proof. On that, Gottheimer is cautiously optimistic.

“I don’t have that crystal ball, but I think this is one of those things where we can build enough support and put together a bipartisan coalition,” he said. “You’ve got those 33 states, many of whom are not SALT states — so you could see where you can get 218 votes here.”

Gottheimer said he’s sensing he’s on the right side of the argument.

“It’s interesting,” he said. “They put out the provisional rules in August and put out for comment. Usually you go to final rule within 60 to 90 days.

“I think they’ve gotten a lot of negative feedback on this, especially from some of those states that have been utilizing this provision for decades. Now, suddenly, they are raising their hands and saying, ‘You stuck it to them on the tax hike bill, no one said anything about sticking it to us.’”