Time to Pay Attention
By Albert B. Kelly
If you haven’t been paying attention to what’s going on in
government and politics, that’s understandable in light of how the 2016
election cycle went down, but it’s time now to get locked in again because if
the “tax reform” bill being floated around Washington DC passes, it would be
devastating to many homeowners and tax payers in New Jersey.
I’m talking here about SALT; not the “Strategic Arms
Limitation Treaty” kind of SALT, although this kind might also be needed before
all is said and done, but about the “State And Local Tax” type of SALT- the
type that will result in a heavy duty financial burden to many residents in our
state.
As I mentioned in this space several weeks back, it has been
32 years since we’ve had a tax code overhaul and everyone agrees that the time
is right for some type of reform and simplification. What they don’t agree on
is how to get this done. One way the White House hopes to get the revenue
needed to offset cuts in other areas is by doing away with the ability to
deduct state and local taxes. Eliminating this deduction would impact our state
particularly hard.
A solid analysis by WHYY’s Colleen O’Dea suggests that the
average New Jersey taxpayer overall, would lose approximately $21,500 in
write-offs if the current tax bill becomes law. Digging a little deeper, there
are no less than 160 zip codes in our state with an average property tax
deduction above $10,000 according to my colleagues at the New Jersey League of
Municipalities who study these policy areas in detail. While the bill allows
for a deduction of up to $10k on local property taxes, it would still hit NJ
hard.
But “average” doesn’t begin to tell the whole story- if you
look at it in terms of specific communities, the numbers are frightening. Using
2015 numbers and the map tool created by O’Dea, a community like Saddle River
in the 07458 zip code where the average adjusted gross income is $393,009, their
total state and local deduction came to $80,567. More eye-popping is New Vernon
in the 07976 zip code where the income number was $732,525 and state and local
tax deductions came in at $143,431.
But maybe you have little sympathy for those in these zip
codes because households there pay more in taxes than many likely earn in a
given year and that’s understandable, but the pain is equal opportunity pain as
some of the numbers in less affluent communities show.
In Woodstown (08098 zip code), the 2015 average adjusted gross
income came in at $75,938 and the total state and local tax deduction was
$15,424. How about Mullica Hill where the average adjusted gross income in the
08062 zip code was $114,680 and the total state and local tax deduction was
$21,780, can those itemizers live without taking these deductions? In Vineland,
the average adjusted gross income in 2015 was $73,784 and the total state and
local tax deduction came to $13,872.
In the 08332 zip code (Millville), where the numbers were
$47,900 for average adjusted gross income and $10,624 in total state and local
deductions and the 08302 zip code (Bridgeton), where it was $44,552 and $10,885
respectively, even those who itemize and claim these deductions in these zip
codes don’t have room at the margins if these deductions are eliminated.
One analysis courtesy of the National Association of
Realtors estimated that for homeowners with an adjusted gross income of between
$50,000 and $200,000, the average tax increase would be a little over $800 if
the state and local tax deduction were eliminated and the standard deduction
were to be doubled. On the lower end of that range, $800 is no small thing.
Other analysts suggest that eliminating SALT would result in
a roughly 10% decline in home values shortly after being enacted. In NJ, this
will be particularly painful in light of how our municipalities depend on the
ratable base for infrastructure, public safety, and education. To the extent
that communities would have to look elsewhere for these resources, these local priorities
would no longer be community-specific, but subject to the whims of state or
federal funding sources.
So yes, we need a tax system overhaul, but it shouldn’t just
benefit corporations, nor should it benefit the wealthiest few at the expense
of the middle class- what we need now is “fair and equitable”.