This op-ed appeared in the March 14, 2018 edition of the Bergen Record
Recently, you might have noticed that your take-home pay bumped up slightly, which for most of us was in the “pleasant-surprise” category. Enjoy it while you can, but before painting the town red, you should know that next year’s news won’t be so good.
There’s a reason that the Republican federal tax law was enacted without a single public hearing or time for observers to evaluate the 700-page bill: it’s really a sneaky way to reassure only the wealthiest Americans that Uncle Sam is looking out for their interests by slashing corporate tax rates (a move that disproportionately boosts the bank accounts of those at the top), dramatically cutting the estate tax and reducing their annual federal tax rates. The new law opens doors to even greater concentration of wealth, and – because it’s recklessly financed by running up the federal deficit – will very likely be tied to deep and devastating cuts to a wide range of public services and investments that working Americans rely on.
If you live in a high-wealth and high-tax state like New Jersey, the news gets worse. For the first time in 100 years, taxpayers may no longer deduct their full state and local taxes (“SALT” for short) from the income on which federal taxes are owed. The deductible ceiling is set at $10,000, so if you pay more than that with property and income taxes combined, your taxable income will increase by a bit.
As a result, many lawmakers have focused their attention on “workarounds” — proposals to essentially evade this new cap on SALT deductions. Rep. Josh Gottheimer and Gov. Phil Murphy have proposed setting up municipal charitable funds so that taxpayers can make charitable contributions to replace most of their municipal, county and school tax bills. Their plan faces a host of technical, political and legal challenges that make the odds of success too long to bank on.
There’s another problem with the charitable contribution proposal and other SALT cap workarounds: those who stand to benefit the most from it are already doing quite well, thank you. In fact, a total lifting of the SALT cap would give 54 percent of its benefits to New Jersey’s wealthiest 1 percent of families, those with incomes of over $1.1 million. On average, each of those families would get a tax cut of $79,460 (a cut that exceeds the median New Jersey family income!).
What about the rest of us? The bottom 80 percent of New Jersey families – those with incomes under $142,000 — would receive less than 1 percent of the benefits if the plan were adopted. Nine out of ten of these families would see not a penny; and the average tax cut for the lucky 10 percent would be $75 a year. That’s $1.44 a week!
In fact, for all the attention in New Jersey on the SALT deduction cap, there is widespread misinformation about what it really means for most families. Yes, a greater share of New Jerseyans will be affected by this new cap than in most other states. And yes, some of them are solidly middle-class, thanks to the state’s high property values and correspondingly high property taxes. But New Jersey’s middle-class families whose SALT payments exceed the new $10,000 deduction cap, pay property and state taxes that only modestly exceed the cap.
The GOP tax law opens up other opportunities that should be given top priority by New Jersey’s political leaders. The state is a deplorable financial condition, ranking in the bottom fifth of states for job creation, worker income and economic activity since the end of the Great Recession. The list of neglected or ignored services and assets is lengthy. Consider such woeful facts like NJ Transit’s declining performance, going from the best-performing commuter railroad in the U.S. ten years ago to the bottom. State financing of our public colleges and universities operating costs has declined by 25 percent over the last eight years, driving up tuition and student debt. And then there’s slashed property tax relief and declining aid to public schools.
In short, the GOP tax law opens up immediate opportunities to invest in the state’s critical assets. As noted, the GOP plan favors the top 1 percent, meaning that New Jersey could require the wealthiest families to return a modest share of their bounty for the benefit of them and all New Jerseyans. Federal corporate tax rates have dropped 40 percent, which opens the opportunity for corporate citizens to help all of us by paying a slightly higher state tax to improve schools and public colleges. And New Jersey must prepare for threatened cuts to federal programs that aid poor, working and middle-class families.
New Jersey has a poor record of investing in its enviable assets like location, a highly-trained work force, high performing public schools and the nation’s 3rd highest percentage of striving immigrants. To reverse that trajectory will require sensible, bold actions to not dawdle, but exploit the openings of a one-sided federal tax “reform.”
