Judge tosses N.J. lawsuit seeking to save your property tax break. Here’s what Murphy said.

Updated Oct 01, 2019

A federal judge Monday threw out a lawsuit that New Jersey and three other northeastern states filed against President Donald Trump’s administration seeking to reverse a controversial $10,000 limit on how much you can deduct in state and local taxes on your federal tax return.

Previously, you could write off an unlimited amount in those taxes — which was popular in states like New Jersey, where property taxes are the highest in the nation.

But the federal tax overhaul passed by Republican-controlled Congress and signed by Trump, a Republican, in 2017 imposed the cap.

The states that filed this suit in 2018 — which also include Connecticut, Maryland, and New York — argued Trump and his fellow Republicans were trying to punish high-tax, Democratic-led parts of the country that would be hit hardest by the cap. Those states already contribute more to the federal government than they receive in services.

They said the cap was unconstitutional because it coerces those states to change their tax policies, stepping on their “sovereign authority to determine their own taxation and fiscal policies.”

But U.S. District Judge J. Paul Oetken wrote in his opinion that the states “cited no constitutional principle that would bar Congress from exercising” its authority “to impose an income tax without a limitless SALT deduction.”

Gov. Phil Murphy, a Democrat whose administration has filed numerous lawsuits fighting Trump’s administration, said Monday night this was a “wrong-headed decision” and that New Jersey is “not gonna give up the fight.”

“They’re taking it out on innocent property taxpayers, and it’s unacceptable,” Murphy said during his call-in TV show on News 12.

“All options are on the table,” the governor added. “We’re considering where we go from here.”

U.S. Rep. Josh Gottheimer, D-5th Dist., called the ruling “absurd” and said he’s working with colleagues in Congress from both major parties to reinstate the deductions.

“The Moocher States targeted NJ and other blue states and have made off like bandits with our tax dollars,” he wrote on Facebook. "I’m sick and tired of paying the bills for these other states.”

The states argued that their residents face higher federal taxes because of the cap and that will cause property values to plummet.

But Oetken said the states "failed to show that the financial burden their taxpayers will experience as a result of the SALT cap is any more severe than the sort of burden that might accompany any other statewide economic disappointment.”

The judge also said the cap will hurt some taxpayers and states more than others and that it doesn’t keep those states from taking their own steps to lower taxes. That’s a popular response Republicans use when criticizing Murphy and Democrats for fighting the cap.

Nearly 24 million U.S. households earning between $75,000 and $200,000 took the deduction in 2017. In New Jersey, 41 percent of households claimed it, according to a report by the Pew Charitable Trusts.

New Jersey enacted one law in an effort to get around the limit, allowing local governments to create charitable funds into which taxpayers could make donations in lieu of paying property taxes the conventional way. Charitable contributions are not subject to the cap.

But the Internal Revenue Service instituted a rule to prevent such a circumvention.

New Jersey filed a separate lawsuit in July to challenge that rule.

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