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SADDLE BROOK – Bob Menendez talked about a letter he got from a woman in Budd Lake in Morris County. Bill Pascrell said it was a comment he heard early Monday from a constituent.
Their point was clear. The capping of the federal deduction for state and local taxes at $10,000 is beginning to impact New Jerseyans. None of this should be surprising.
Capping the longstanding deduction, which was part of the Trump tax reform package, was big news when it was passed in late 2017 and during last fall’s congressional campaign. But now the expected reality is actually happening.
Sen. Menendez and Rep. Pascrell joined about a dozen local, county, state and other federal officials Monday morning to trumpet a new bill aimed at restoring the full deduction for state and local taxes. Other congressmen attending were Democrats Frank Pallone and Andy Kim. Republican Chris Smith, the only GOPer remaining in the state’s congressional delegation, also backs the bill.
Menendez and Pascrell said they have heard already from residents accustomed to getting a tax refund who now owe the federal government money.
The lawmakers displayed charts showing the Trump tax plan would cost a married couple with an income of $150,000 a little more than $2,500 this year. It would cost a single person with a $100,000 income almost $1,500, they said.
“Only this president can manage to lose $1.5 trillion while raising taxes,” Menendez said, referring to the projected deficit caused by a tax plan many Dems label a giveaway to the wealthy. A key part of the bill reduced the corporate tax rate from 35 to 21 percent.
Taxes, of course, are tough to generalize. So much depends on personal circumstance. And it is true the Trump plan increased the standard deduction, the child credit and slightly lowered rates.
Nonetheless, the lawmakers said the average New Jersey family had claimed a $18,000 deduction for state and local taxes. So, with the $10,000 cap, those families lose an $8,000 deduction. The average deduction, naturally, is higher in wealthier areas. Pascrell said that in parts of his Ninth District in Passaic, Bergen and Hudson counties, families have claimed a $24,000 deduction.
The now Democratic-controlled House seems likely to pass legislation restoring the deduction. But what happens next?
A spokesman for Sen. Chuck Grassley, the Iowa Republican who chairs the Senate Finance Committee, said last week there are no plans to revisit the issue.
In short, supporters suggest the deduction forces the rest of the country to subsidize high-tax states like New Jersey, New York and others. Various studies, however, show that states such as New Jersey actually send much more money to Washington than they get in return.
How do you break that political stalemate?
Menendez cited three reasons why it can be done.
First is pressure if the House passes a bill with at least some Republican support. Second are comments President Trump made last week about a willingness to do away with the cap. Then, there’s simple politics.
Menendez said the overall tax plan was so hastily drawn up, there are a number of “fixers” that need to be made. Some of these are routine, but Menendez said Democrats will refuse to make them unless Republicans budge on the deduction cap. Senate Democrats have that power because 60 votes are generally needed to get things done in the Senate and Republicans control the body by only 53 to 47.
One thing is obvious. The politics here certainly favor Democrats. Pascrell noted that Democrats picked up 40 seats last fall, many from Republicans who backed Trump’s tax plan.
Here in New Jersey, former Rep. Tom MacArthur, the only Republican to vote for the plan, lost reelection. More instructive, perhaps, is what happened in the 11th District. Republican Jay Webber fully embraced the Trump tax plan, seeing it as a net benefit to average residents. He lost a traditional Republican district by 47,000 votes.
Politics aside, it’s worth bringing up another part of this question. Just why are local taxes – mostly property taxes – so high in New Jersey in the first place?
There is no easy solution. Reducing government in the state by consolidating services and even towns is often talked about, but nothing happens. Nor has there been – in recent memory – a serious attempt to examine what property taxes support and see if there are better ways to do it. This would mean, for instance, no longer using property taxes to fund public education.
Both Menendez and Pascrell noted that a high-density and congested state like New Jersey has problems many less-populated states do not have. And it is also true that many of these less-populated states get a laundry list of federal agricultural subsidies.
So, the prevailing view Monday morning was, let’s not punish the Garden State simply because taxes are high here.