Top Tax Law Experts Affirm Legal Basis For Gottheimer Tax Cut Plan

Scholars Note Plan’s Central Mechanism is “Correct and Long-Standing” Principle of Federal Law

WASHINGTON – Yesterday, eight of the nation’s top tax law scholars published an academic paper supporting the Gottheimer Tax Cut Plan. In their paper “Federal Income Tax Treatment of Charitable Contributions Entitling Donor to a State Tax Credit,” the scholars call the “Full Deduction Rule” — which underpins Gottheimer’s Tax Cut plan and existing plans in 33 states — a “correct and long-­standing trans-­substantive principle of federal tax law.”

The Gottheimer Tax Cut plan provides for towns to provide a state or local tax credit for charitable contributions made to support public services, from law enforcement to schools. Such contributions would be tax deductible as charitable contributions under Federal law – unlike much of the State and Local income taxes.

The scholars note that “under current law, expressed through both court opinions and rulings from the Internal Revenue Service, the amount of the donor’s charitable contribution is not reduced by the value of state tax benefits.” The paper concludes that “The effect of [this rule] is that a taxpayer can reduce her state tax liability by making a charitable contribution that is deductible on her federal income tax return.”

The paper notes that these tax credits have been used since 1987, and that the rule “is supported not only by decades of precedent but by a host of policy considerations.” Finally, the paper concludes that “The combination of precedent and policy justifications suggests that the Full Deduction Rule should survive administrative and judicial challenge,” and “changes to the [rule] would require legislation” cautioning that ”a legislative override of the [rule] would raise significant administrability concerns and would implicate important federalism values. Congress should tread carefully if it seeks to alter the [rule] by statute.”

Congressman Josh Gottheimer (NJ-5) said, “At the end of last year, Congress took a two-by-four to our state – passing a Tax Hike Bill, which gutted the state and local tax deduction, or SALT, sharply limiting our property tax deductions, imposing a massive tax hike on our families and businesses.  The Tax Cut Plan, which has been endorsed by state and federal elected officials, including the mayors of Fair Lawn, Paramus and Park Ridge, the leadership of the State legislature and the New Jersey Chamber of Commerce, fights back against these unfair tax hikes with an alternate way for our hard-working families to cut their taxes. This paper is welcome additional support for a pro-growth Tax Cut Plan and I’m confident that as word spreads, we’ll continue to see tremendous backing for this plan that will save New Jersey families money on their taxes.”

The paper was co-written by eight top tax scholars including UCLA’s Kirk J. Stark, who regularly testifies on state and local tax policy before the California state legislature and has also served on the Board of Directors of the National Tax Association, a nonpartisan organization founded in 1907 to promote the study of tax policy and public finance, and Stanford’s Joseph Bankman, who has authored two of the widely used casebooks on the field of tax law.

A full copy of the paper is available HERE and more information on the Gottheimer Tax Cut Plan can be found HERE.

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