Tuition Voucher Donations
The new limit hits California and New York hardest, due to their high state taxes and large populations. Connecticut, New Jersey, and the District of Columbia round out the top five jurisdictions where individuals claimed the largest average SALT deductions.
“We want to pursue this aggressively,” said Murphy, who was joined during a news conference by Representative Josh Gottheimer, a New Jersey Democrat, and other officials. In addition to the charitable-giving strategy, he said he’s exploring changes to the state income-tax system -- and a potential lawsuit.
“If there’s even a sliver of hope to challenge constitutionality of this, we will” file suit, he said.
Murphy’s charitable-giving plan builds off of a nascent movement among states to provide full and partial tax credits in return for donations that fund tuition vouchers for private and religious schools. A 2011 memo from the Internal Revenue Service seemed to signal the agency’s approval of taxpayers claiming federal deductions on those gifts.
Murphy said there’s precedent for the charity approach -- but the IRS memo shouldn’t be considered as such, said Andy Grewal, a professor at the University of Iowa College of Law.
“If somehow this did succeed, Congress could just pass a one sentence statute,” said Grewal. “It’s too good to be true.”
‘Economic Civil War’
On Jan. 4, California’s de León introduced a bill offering a dollar-for-dollar tax credit to state taxpayers who make donations to an entity called the California Excellence Fund -- a proposal that, like Murphy’s, would seek to use the federal deduction for charitable gifts to shield residents from the cap on the SALT deduction.
The day before, New York’s Cuomo likened the federal tax reform law to “economic civil war” in a speech and promised a number of strategies to counter the SALT cap -- including suing the federal government and expanding opportunities to use deductible charitable gifts to fund government operations.