New Jersey is the latest high-tax state looking for ways to limit the potentially negative effects of the Republican tax overhaul, which imposed a $10,000 limit on state and local tax deductions.
On Thursday, New Jersey Gov. Phil Murphy asked his state legislature to send him a bill that would give state residents the option of making charitable contributions in lieu of property taxes while granting tax credits in return. “When the disastrous federal tax legislation passed, I committed to pushing back and taking steps to ensure that the people of New Jersey are not subjected to unfair double taxation,” Murphy said in a statement, citing a common complaint that high-tax state residents are now being unfairly taxed twice on their incomes.
Other states considering similar options include California and New York. But as we’ve noted before, the workarounds raise serious questions, not least of which is that may be highly regressive since they’ll tend to benefit high-income taxpayers. On top of that, there’s no guarantee they’ll work as designed and may produce unintended effects.
This week, the chair of the senate finance committee in New York, where Gov. Andrew Cuomo is considering a proposal to rely more on payroll taxes in order to negate the new deduction limit, warned that making such changes to the state’s tax laws would be “extraordinarily unpopular.” The reason is that the new rule Cuomo is contemplating would result in lower gross incomes for state residents, including those living far from the high-tax zones in and around New York City.
While Cuomo is still pressing ahead with his plan, the brewing battle in New York is a good reminder that just about every change in the tax code creates winners and losers, and that blue state governors will likely meet some resistance as they look for workarounds for the new federal tax rules.