Pushing for Appropriations Provision to Prohibit IRS from Blocking the Charitable Deduction
WASHINGTON, D.C. –– Today, U.S. Congressman Josh Gottheimer, the Co-Chair of the bipartisan SALT Caucus, is helping lead a request to the House Appropriations Committee to restore the State and Local Tax (SALT) deduction and provide relief for hard-working, middle class families in New Jersey. Gottheimer and a group of Members of Congress are fighting for a provision that would prohibit the IRS from putting restrictions on state governments that block states from delivering SALT relief, including the use of a charitable deduction.
After the 2017 Tax Hike Bill capped the SALT deduction, many states like New Jersey developed innovative policies to provide relief to taxpayers, including by expanding access to the federal charitable deduction and helping small business owners to continue deducting their full SALT at the entity level. However, the IRS in 2019 issued new regulatory guidance restricting states from implementing these initiatives.
“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 Congressman Josh Gottheimer (NJ-5), the Co-Chair of the bipartisan 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.”
Read the full text of the letter here:
Dear Chairman Quigley and Ranking Member Womack,
As the Financial Services and General Government Subcommittee prepares its Fiscal Year (FY) 2023 appropriations bill, we write to express our support for the inclusion of language prohibiting the Internal Revenue Service from using funds appropriated by this Subcommittee for the purpose of restricting state governments from delivering state and local tax (SALT) relief to hard-working families. For our constituents and millions of Americans nationwide, the SALT deduction cap enacted under the Tax Cuts and Jobs Act has imposed a harmful double tax and has created one of the largest marriage penalties in the federal tax code. By providing SALT relief to taxpayers, we can strengthen economic growth in our communities, boost state and local investments in key public services such as K-12 education and law enforcement, and reduce distortions in our tax code.
Following the enactment of the SALT deduction cap in 2018, many states moved to pass policies that would provide billions of dollars in relief to affected taxpayers. In New Jersey and New York, for example, state lawmakers passed legislation that permitted localities to establish charitable funds to support local services and offered property tax credits to homeowners who contributed, allowing those taxpayers to claim their payment as a charitable deduction on their federal taxes and thereby not lose the deduction that they would have received from SALT prior to the passage of the TCJA. More recently, these states also passed legislation to allow passthrough entities to pay income taxes at the entity level instead of the personal level, where there is no $10,000 SALT cap. This would allow thousands of small business owners, who were greatly impacted by increased costs from the SALT cap, to claim their full SALT deduction and use that relief to invest in and grow their businesses.
However, the IRS has responded to these innovative state policies in many cases by issuing new regulatory guidance prohibiting their implementation, thereby depriving millions of taxpayers from receiving needed relief. In 2019 for example, in response to states creating charitable funds to help taxpayers claim an additional deduction in the absence of SALT, the IRS issued rules that reduced the amount of the federal deduction that a taxpayer can claim by contributing to one of these charitable funds. The result of this guidance was to eliminate the ability of families to receive this relief from the SALT deduction cap, a critical issue for districts like ours where a large percentage of taxpayers claimed the SALT deduction prior to 2018.
Particularly at a time when high cost of living states continue to see prices skyrocket, the IRS should not be using appropriated funds to prevent those very states from delivering critical relief to their residents. This is not just an individual taxpayer issue, but also one significantly affecting the availability of high-quality public services for years to come. The SALT deduction cap specifically punishes states and localities that make large investments in public goods such as K12 education, green infrastructure, and first responders. By acting to keep the burden of the SALT deduction cap on our communities, the IRS is making it even more difficult for states to make these important investments.
For these reasons, we ask that you include the following report language prohibiting the IRS from using funding appropriated by this Subcommittee for activities that restrict state governments from providing SALT deduction cap relief to taxpayers:
“IRS Restrictions on State Policies Providing SALT Deduction Cap Relief — The Committee prohibits funding appropriated to the Internal Revenue Service in the FY 2023 Financial Services and General Government Subcommittee bill from being used to issue regulatory guidance or rulings that restrict the ability of state governments to enact legislation or policies that provide relief to taxpayers from the state and local tax (SALT) deduction cap as enacted under the Tax Cuts and Jobs Act. Such prohibited funding shall apply to IRS rulings in opposition to the development of state-level charitable funds that allow taxpayers to claim their full federal charitable deduction and state-level policies allowing pass-through entities to pay taxes at the entity level, among others.”
Thank you for taking the time to consider the importance of SALT deduction cap relief for families and public investment in districts like ours. We look forward to working with the Committee to ensure that states have the flexibility necessary to implement innovative approaches to ensuring that families are not subject to double taxation or marriage penalties as a result of the SALT deduction cap.
Mikie Sherrill, Member of Congress
Josh Gottheimer, Member of Congress
Tom Malinowski, Member of Congress
Katie Porter, Member of Congress
Thomas R. Suozzi, Member of Congress