New Jersey would be hit hard by the elimination of a federal deduction for state and local taxes, but bipartisan opposition is growing to any such change

The Trump administration’s recent tax-reform proposals have a key provision that would hit blue states particularly hard — the elimination of a federal deduction for state and local taxes. But while the GOP-dominated Congress might not need Democratic votes to get the provision passed, it does need the support of Republicans, some of whom — including U.S. Rep. Leonard Lance (R-7th) — have stepped up in opposition.

For New Jersey residents, the loss of the state and local tax, or SALT, deduction, would mean they will no longer see any federal tax benefits from footing local property tax bills that now average $8,549, the highest among U.S. states. And even though it’s generally thought to impact only states that favor Democrats at the ballot box, research from the Washington, D.C.-based Tax Policy Center indicates middle-class homeowners in Republican congressional districts all over the country are among those that would be most impacted if the SALT deduction is eliminated.

“This is a matter of fairness for taxpayers across the country, and of course, particularly, for taxpayers here in New Jersey,” said Lance yesterday during a news conference in Newark.

No details

Trump administration officials first floated the idea of eliminating the federal income-tax deduction for state and local taxes as part of a broader proposal to revise federal tax policy that was put forward in late April. After focusing for much of the year on unsuccessful efforts to roll back the Affordable Care Act, also known as Obamacare, President Donald Trump is now making the tax-reform issue a top priority for the remainder of the year.

Among the proposals outlined by Trump last month are a reduction of the top-end income-tax rate and of corporate tax rates, and an elimination of the federal estate tax. Trump, meanwhile, has also promised to deliver middle-class property tax relief by streamlining tax brackets, and by doubling the standard deduction. But many of the finer details have yet to be released, making it difficult to fully analyze those elements of his plan.

Also included in Trump’s plan is the elimination of many deductions, including the SALT deduction, which by some estimates costs the federal government nearly $100 billion annually. The deduction dates back more than 100 years, to the early days of the tax code itself, but it has long had its critics. Opponents of the deduction argue that it essentially rewards high-tax states for not having more discipline while also forcing taxpayers in more frugal locations to subsidize those in less thrifty areas. But the SALT deduction’s defenders say it prevents double or even triple taxation of the same personal income by multiple layers of government, a theme that goes back all the way to the country’s colonial days and the influential Federalist Papers.

Pascrell: ‘It’s a double-tax’

Earlier this year, after the tax deduction was first put on the chopping block, Lance and U.S. Rep. Bill Pascrell (D-9th) were among a bipartisan group of 70 federal lawmakers who signed a letter urging the Trump administration to reconsider. They argued the policy would hit the middle class, estimating nearly 80 percent of those who claim the deduction in New Jersey make less than $200,000, and more than 50 percent make less than $100,000.

“This proposal would make you pay taxes on the property taxes you’re already paying,” Pascrell said at the news conference yesterday. “I want to repeat that over and over again: It’s a double-tax on homeowners.”

The Tax Policy Center’s figures also make clear that it’s more than just Democratic districts in states that voted against Trump that would be impacted by the change. For example, more than 53 percent of the residents in Lance’s district who paid federal taxes in 2014 claimed the deduction, which was tied with Republican Rodney Frelinghuysen’s 11th district for having the second-highest percentage of residents claiming the deduction.

While Trump has made passing tax reform a top priority for the remaining months of 2017, Lance suggested yesterday that that may be unlikely as long as the SALT proposal is only partisan in nature. Representatives from both parties in all of the more populous states that would be hit the hardest by the loss of the SALT deduction, including New Jersey, New York, California, Connecticut, Illinois and Massachusetts, could flex their muscles in opposition, just as they have in the past when this issue has come up.

Lance: ‘…it certainly will not prevail with my vote’

“I do not believe that this will prevail, and it certainly will not prevail with my vote,” Lance said. “I want to make sure that all of my colleagues, Democratic and Republican colleagues, recognize the importance of this because it is important to other states as well.”

The congressmen also raised concerns about bankrolling the proposed tax cuts on the backs of middle-class taxpayers in states like New Jersey, where residents already contribute more in taxes than is returned in federal aid. For example, the elimination of the estate tax — which only benefits individuals with estates worth more than $5.49 million — could cost roughly $20 billion in lost revenue annually.

“We subsidize other states, and now they want us to give even more,” Pascrell said.

In New Jersey, the state tax code allows homeowners to deduct up to $10,000 in property taxes on their state income-tax returns. Earlier this year, Gov. Chris Christie, a second-term Republican, said he would reserve judgment of Trump’s tax-reform plan until all of the details are released.

But Lt. Gov. Kim Guadagno, a Republican who is running this year to succeed Christie, didn’t hold back yesterday, saying a loss of the SALT deduction would be “disastrous for the economy of New Jersey.” “I’ve already begun to lobby our federal representatives about that aspect of the plan to see that it is not implemented,” Guadagno said.

Democratic gubernatorial candidate Phil Murphy has also weighed in, calling for “full-throated opposition” to Trump’s plan. “If you look at the states that will be hit hardest by the elimination of state and local tax deductions, New Jersey is at or near the top,” Murphy said. “That is unacceptable.”

Colleen O’Dea contributed to this story.>