Senate Democrats forced the vote but were defeated, 52-43, largely along party lines. The resolution would have overturned a Treasury Department ruling designed to prevent efforts to get around the Republican tax law’s $10,000 deduction limit for state and local income, sales and property taxes by having homeowners donate instead to municipal charitable funds.
The cap disproportionately affected homeowners in New Jersey and other high-tax states, most of which send billions of dollars more to Washington than they receive in services. It was imposed in order to help fund a tax law that independent studies showed gave most of its benefits to the wealthy and that the Congressional Research Service said had virtually no effect on economic growth.
But the tax law did have an effect in depressing New Jersey home prices. A study by Moody’s Analytics found that all 21 counties in the Garden State had home values below what they otherwise would have been without the tax law in place
President Donald Trump “dipped into the wallets of New Jersey’s middle class by gutting the state and local tax deduction they used to write off their property taxes,” said U.S. Sen. Robert Menendez, D-N.J., a member of the tax-writing Senate Finance Committee.
“The outcome of today’s vote is another example of Republicans abandoning New Jerseyans and Americans that have worked hard to fulfill the American Dream through homeownership,” Booker said.
Senate Finance Committee Chairman Chuck Grassley, R-Iowa, claimed that removing the state and local tax cap disproportionately would help the rich. Grassley has sponsored legislation to repeal the federal estate tax, paid only by individuals with more than $11 million in assets, none of them family farms or small businesses.
“These workarounds are essentially state-sanctioned tax shelters,” said Grassley, whose state receives $1.13 back for every $1 paid in federal taxes, compared with New Jersey’s 82 cents. “It’s cheating, and these states are encouraging it, forcing the rest of the country to subsidize these tax shelters for the wealthy.”
The Internal Revenue Service for years sanctioned such charitable accounts to allow taxpayers to subsidize private and religious schools, but Trump administration officials, in an action the Treasury inspector general for tax administration called a departure from normal procedure, inserted themselves into the debate over municipal charitable funds.
New Jersey and two other states have gone to court to overturn the rule.
Menendez and Rep. Bill Pascrell Jr., D-9th Dist. have introduced legislation to restore the full deduction and pay for most of it by re-imposing the 39.6 percent tax rate on the richest Americans that Trump, Grassley and the Republicans lowered in their tax law.
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