New Jersey taxpayers hit hard by a recent cap on state and local tax deductions should be able get a break by donating to local charitable funds, says state Attorney General Gurbir Grewal, who Wednesday filed a federal lawsuit against the IRS and Treasury Department along with New York and Connecticut to overturn a recent IRS ruling that would largely prevent the practice.

"When the IRS rule was finalized in June, it was nothing more than a gut punch to the middle-class New Jersey families that know that the Trump tax plan is a complete sham," Gov. Phil Murphy said at a news conference at the South Orange Fire Department on Wednesday.

After President Donald Trump's 2017 tax overhaul, taxpayers can now deduct only up to $10,000 of state and local taxes from their federal income tax, also known as a SALT deduction cap. Before the Tax Cut and Jobs Act, there was no limit on deductions. The cap puts additional strain on New Jerseyans, who already suffer from some of the highest property and income taxes in the country.

Close to 40 percent of New Jersey taxpayers deducted local and state taxes in 2016, averaging $18,000 each deduction, according to the New Jersey Society of Certified Public Accountants. Under the new cap, an average taxpayer would lose $8,000 in deductions on federal taxes.

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In response, Murphy signed a bill last year allowing municipalities to create charitable funds to work around the $10,000 SALT cap. The law would let property owners receive property tax credits for up to 90 percent of what they donate to the funds. New York passed a similar law that would provide tax credits worth 95 percent of the donation.

So for example in New Jersey: Someone with a $20,000 property tax bill could donate $20,000 to this new city charitable fund. In return, the property owner would get an $18,000 property tax credit and deduct the $20,000 as a charitable donation, as opposed to a SALT deduction.

No municipality in New Jersey has set up its own charitable fund so far, according to Grewal, who said the local governments were largely waiting on the IRS rule to be finalized before doing so.

But in June, the IRS blocked New Jersey's and New York's attempts by issuing regulations that would let governments only give out tax credits equal to 15 percent of all charitable donations.

"There was absolutely nothing new, novel or unique about what we did: About 33 states have a [charitable fund] program similar to New Jersey's," Grewal said.

The lawsuit alleges the new IRS rules did not follow the language of the tax code and did not act in ways that are rational or well-reasoned.

"As for the likelihood of success: This is an argument that the IRS has supported in the past. There is nothing novel or unique or new about what we’re saying here, that these types of funds are allowed," Grewal said.

But these new government charitable funds are different from other states', said Edmund J. McMahon, founder of the Empire Center, a fiscally conservative think tank based in New York.

These new municipal funds are meant to substitute for general state and local spending that New Jersey is already making, as opposed to charities in 33 other states, where, if they raise no money, they have no money, McMahon said.

"As a practical matter, New Jersey, New York and Connecticut are being disingenuous. They flat-out invented this as a workaround to the SALT cap. It's a political contrivance," McMahon said. "As a legal matter, we’ll see. The way the IRS chose to block this left them open and vulnerable to this legal attack."

The IRS didn't distinguish between the two types of charities, McMahon said, leaving them open to legal challenges. "But don't hold your breath on this being a reality anytime soon," he said.

Last year, New Jersey joined Connecticut, Maryland and New York in a lawsuit against the IRS seeking to overturn the cap.

U.S. Rep. Josh Gottheimer, D-Wyckoff, and other Democrats in Congress have pushed bills to eliminate the SALT deduction limit, and also introduced legislation Wednesday along with Rep. Mikie Sherrill, D-Montclair, to overturn the IRS ruling limiting the charitable deduction rule.

"This is a welcome fight from our attorney general, and I’m glad that New Jersey is on the front lines against the moocher states," Gottheimer said.

New Jersey Republican State Committee Chairman Doug Steinhardt wasn't impressed with the suit.

"This lawsuit is a political stunt and another waste of taxpayer money," Steinhardt said in a statement. "If we really want to lift the SALT cap, then we need to send representatives to Washington that can actually have a conversation with President Trump."

Sen. Steve Oroho, R-Sussex, added that the lawsuit does little to address overburdened taxpayers, and that long-term changes are needed, like those suggested by Senate President Stephen Sweeney, D-Gloucester, in his "Path to Progress" proposal.

“Addressing the real cost drivers to government, mainly the exploding expenses of pensions and benefits, would lead to significant savings for New Jersey homeowners," Oroho said. "I urge the governor to get behind the fiscal reforms proposed by the Legislature as the best way to relieve the burden on overtaxed Garden State families, and not engage in mere window-dressing policies.”