WASHINGTON, DC — Three New Jersey lawmakers took action in their push for relief on the $10,000 cap on the federal deduction for state and local taxes (SALT). Reps. Mikie Sherrill, Josh Gottheimer and Tom Malinowski urged colleagues to block IRS funds for enforcing workarounds to SALT deduction cap.
The Tax Cuts and Jobs Act, which then-President Donald Trump signed into law in 2017, placed a $10,000 limit on the SALT deduction. With some of the nation’s highest taxes, New Jersey was among the most impacted states. Forty-one percent of New Jersey taxpayers in the 2016 tax year took advantage of the SALT deduction, taking an average of $18,092 off taxes, according to IRS data.
Several states, including New Jersey, developed ways to circumvent the deduction cap. Gov. Phil Murphy signed a law in 2018 that allowed local governments to create charitable funds into which taxpayers could make donations in lieu of paying conventional property taxes. But the IRS and U.S. Department of the Treasury barred these workarounds in 2019, saying they constituted a “quid pro quo.”
Sherrill (NJ-11), Gottheimer (NJ-5) and Malinowski (NJ-7) joined Reps. Tom Suozzi (NY-3) and Katie Porter (CA-45) in urging the House Appropriations Committee to include language in FY 2023 Appropriations legislation to block the IRS from enforcing its ruling. With increasing costs of living, the Democratic lawmakers urged committee leadership to take action.
“Congress didn’t give the IRS permission to interpret the tax law as they see fit, which they’ve done by dismantling the charitable tax deduction,” said Gottheimer, the co-chair of the Congressional SALT Caucus. “We must do everything we can, including restoring the SALT deduction, to help cut taxes and make life more affordable for families and small businesses.”
The lawmakers sent the letter — dated April 27 — to Reps. Mike Quigley (IL-5) and Steve Womack (AR-3), who respectively serve as chairman and ranking member of the House Appropriations Subcommittee on Financial Services and General Government. Patch reached out to Quigley’s and Womack’s press contacts and will update with any response.
Leadership in states most affected by the SALT deduction cap have attempted for five years to get it removed or find ways to make up for the loss in relief to taxpayers who benefitted from the uncapped deduction. New Jersey, New York, Connecticut and Maryland challenged the federal law’s constitutionality in a 2018 lawsuit. A federal district court dismissed the lawsuit in 2019, finding the states failed to show that the SALT cap significantly impaired their ability to pursue their own preferred tax policies.
But Sherrill says that hasn’t quite been the case because of federal restrictions.
“The cap of our SALT deduction Trump’s tax law imposed a double-taxation on NJ families and billions of dollars in additional costs on taxpayers in my district, and has made it more difficult for our towns and counties to invest in critical services such as our schools and first responders,” Sherrill said. “Our provision will cut red tape and allow states to enact innovative policies that deliver much-needed relief to families in New Jersey and nationwide.”
The SALT cap became a major part of Build Back Better Act negotiations. The House of Representatives passed an $80,000 SALT cap through 2030 in November as part of the spending package. But Senator Joe Manchin (D-WV) blocked the plan in the Senate.
Sherrill, Malinowski and Gottheimer have made efforts to revoke the SALT cap a major part of their political platforms. With midterms approaching, The Cook Political Report predicts competitive races for Malinowski and Gottheimer. New Jersey’s 7th Congressional District, which Malinowski represents, leans Republican, while Gottheimer’s in NJ-5 will likely go Democratic, according to the Cook analysis.
“My constituents have been asking Congress to right the wrongs of the 2017 GOP tax bill, which deliberately targeted states like New Jersey to pay for its corporate tax cuts,” Malinowski said. “Just this past year, I helped lead the effort to advance provisions in Build Back Better that would fully restore the SALT deduction. And I introduced a bill to not only fully restore the deduction, but apply the raised revenue to a new vision and hearing benefit under Medicare. I’ll keep fighting alongside my colleagues to restore SALT relief and bring tax fairness back to New Jersey.”