Wall Street warns New Jersey home values could tumble 7.5 percent

A pair of federal and state tax policy decisions could deliver a double whammy to New Jersey and its homeowners, a Wall Street credit-rating agency warned on Monday.

Just days after outgoing Gov. Chris Christie's administration proclaimed that it was leaving New Jersey in good fiscal health, Moody's said reductions in the state sales tax and federal tax reform signed at the end of the year could deliver punishing blows to the state's finances.

The reduction in corporate and personal income taxes backed by congressional Republicans and signed into law by President Donald Trump could result in the average value of a New Jersey home dropping by 7.5 percent, Moody's said in a report.

The tax reform limits federal deductions for state and local tax payments to $10,000, well below the average $17,850 deduction claimed by New Jersey taxpayers in 2015.

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The loss of home values will leave New Jersey homeowners with less wealth and disposable income, depressing retail sales, Moody's said.

On top of that, a Christie-backed reduction in the state sales rate that took effect Jan. 1 will cut $400 million from collections in the year ended June 30 and $500 million the following year, according to the rating agency's report.

The tax rate dropped to 6.625 percent from 6.875 percent under a package of cuts that the state adopted in October 2016.



On Jan. 9, as he prepared to leave office after two terms, Christie boasted of tax cuts that, he said, helped cut the state unemployment rate in half while handing off to Gov. Phil Murphy a budget that includes a surplus.

Christie's Treasury Department reported Jan. 12 that taxes on sales, incomes and corporations had increased 8.7 percent since July 1 compared with the previous year, which was more than double the projection of 4.2 percent.



"Lower tax policies have worked to revive a moribund economy and led to seven consecutive years of private-sector job growth," Christie said in his final State of the State speech Jan. 9. "That is a very consequential accomplishment for all the people of our state."



Moody's attributed the surge in tax revenue to a 2008 federal law that gave hedge fund managers a Dec. 31 deadline to pay back offshore windfalls and another consequence of the law signed late last year: taxpayers moving up payments to get around changes in the federal tax code.

The latter change likely will mean lower payments in April, when income tax filings come due, Moody's said.



New Jersey has the second-lowest credit rating among states from Moody's, largely due to its unpaid pension obligations.

The credit-rating agency warned that the state must continue to make payments to its pension fund, despite a dimmer tax outlook, or risk more fiscal deterioration.