Topic Category: Tax and Budget

Federal Tax Plan No Reason to Shelve NJ Income Tax Fixes

Posted on by Jon Whiten

This appeared as a Letter to the Editor in the November 28, 2017 edition of The Star-Ledger.

Legislative leaders are now expressing caution about long-held plans to make New Jersey’s income tax fairer by asking the wealthiest residents to pay a little more. The reason: Fears about a “double whammy” if the Republicans’ federal tax proposal eliminates state and local tax deductions used heavily by New Jerseyans. But those fears are unfounded.

In fact, the Republican tax proposals in D.C. all favor the wealthy – even if these deductions disappear. Under the new Senate plan, for example, it’s New Jersey families earning under $111,000 who will, on average, pay more in net taxes – not the wealthy. In fact, Garden State families with incomes over $440,000 would get an average annual $2,826 tax cut. The bottom line: New Jersey’s wealthy families aren’t being punished by the GOP tax plans – they’re being rewarded.

New Jersey’s leaders should absolutely make the state’s income tax fairer – and they should also look into recouping some of the federal tax cut dollars to help protect the state’s working families from the devastating cuts to health care, food assistance, education and housing that the GOP tax plan tees up.

 

Expanding EITC Could Help Over 1 Million New Jersey Families

Posted on by Brandon McKoy

Earlier this fall, U.S. Senator Sherrod Brown and Representative Ro Khanna, joined by 52 House cosponsors, introduced legislation that would expand the earned income tax credit (EITC) and help raise the incomes of 47 million working families and individuals across the country, including over 1 million right here in New Jersey.

Expanding the EITC – a federal tax credit with a long track record of success in helping lift families out of poverty – is the kind of real tax “reform” that could actually boost working-class Americans, unlike the Trump-GOP proposal that delivers the overwhelming majority of its benefits to the top 1 percent. New Jersey’s own Representatives Bonnie Watson Coleman, Donald Norcross, Frank Pallone Jr., and Albio Sires should be applauded for co-sponsoring this proposal, and we urge their colleagues to join them.

The Brown-Khanna proposal would expand the EITC by lowering the qualifying age for workers without children to 21 from 25 and increasing income eligibility levels for all EITC recipients. For families with children, the average federal credit would be more than $5,600, and the maximum federal credit would nearly double from $3,400 to $6,528; the income ceiling to qualify would increase from about $45,000 to about $65,000. For families without children, the average federal credit would be more than $1,800, and the maximum federal credit would increase nearly six-fold from $510 to $3,000; the income ceiling to qualify would increase from about $15,000 to about $37,000.

Expanding the EITC would also significantly reduce the number of working families and individuals in poverty – effectively doubling the poverty-reducing impact of the federal credit. In 2015, the federal EITC lifted 6.5 million people out of poverty, including about 3.3 million children. The Brown-Khana proposal would lift an additional 8.3 million people out of poverty, including 2.9 million children. Additionally, 16.9 million people would be made less poor, including 5.3 million children. With income inequality at alarming levels across the nation, this would be an important step to reversing course and helping low-income families have a better shot at success.

The working families who receive the EITC in New Jersey would be especially helped by this proposal, since the state has its own version of the credit, which is refundable at 35 percent of the federal credit.

The over 1 million New Jersey workers who would be helped by the proposal are a diverse group, including everyone from retail workers to truck drivers to home health aides and teachers.

Latest Senate Tax Proposal Even Worse for New Jersey’s Working Families

Posted on by Jon Whiten

To read a PDF version of this report, click here.

The latest Senate tax proposal, with the amendments added last Thursday, November 16, would raise taxes for the average middle-class and low-income New Jersey family while cutting taxes for wealthier families and for large corporations. Worse, it would increase the number of New Jerseyans without health insurance by 340,000 by 2027.[1] (Unless otherwise noted, all data in this Fast Facts is on the impact in the year 2027, once the plan is fully phased in.)

The proposal is noticeably worse than the original, both in its inequitable distribution – in other words, it brings more direct and immediate harm to the bottom 60 percent of families than the original bill – and in its overall impact on New Jersey: at least 29 percent of Garden State households would see a tax hike under the revised bill,[2] versus 22 percent in the original.[3]

Once this plan is fully phased in, New Jersey households with incomes over $1.4 million (the top 1 percent) would receive an average $8,570 tax cut while the bulk of Garden State families (the bottom 60 percent, or those with incomes under $111,000) would see a tax hike averaging $120.

The plan is a clear example of Robin Hood in Reverse, as it gives the largest average tax hikes to New Jersey’s poorest families while showering the state’s very wealthiest families with the biggest tax cuts.[4] While just 1.6 percent of the state’s wealthiest 5 percent of families would see a tax hike, 1 in 3 families in the bottom 60 percent would.

The latest Senate proposal:

  • Permanently repeals the Affordable Care Act’s individual mandate – the requirement that people get health insurance or pay a penalty – which would leave 13 million more Americans (and 340,000 New Jerseyans) uninsured, raise premiums for millions more, and create uncertainty across the health insurance market[5]
  • Pairs permanent tax cuts for corporations and permanent tax hikes for many low- and moderate-income families with temporary tax cuts for most working and middle-class families[6]
  • Increases the federal deficit by $1.5 trillion over a decade
  • The growing deficit will be used as the excuse for major cuts in services and programs that working New Jerseyans count on
  • By eliminating state and local tax deductions used by about 4 in 10 New Jersey families, it will make it harder for states to invest in schools, infrastructure, health care and more[7]

Endnotes

[1] NJPP analysis based on Congressional Budget Office estimates (see Endnote 5) using weighted average for employer-based, marketplace, and Medicaid expansion coverage.

[2] This estimate is the likely low, because it does not include the impact of the repeal of the ACA mandate.

[3] New Jersey Policy Perspective, Fast Facts: New Jersey Second Hardest Hit State Under Senate Tax Proposal, November 2017. https://www.njpp.org/budget/fast-facts-new-jersey-second-hardest-hit-state-under-senate-tax-proposal

[4] Institute on Taxation and Economic Policy Microsimulation Tax Model, November 2017. Full dataset available at https://itep.org/senatetaxplan/

[5] Congressional Budget Office, Repealing the Individual Health Insurance Mandate: An Updated Estimate, November 2017. https://www.cbo.gov/system/files/115th-congress-2017-2018/reports/53300-individualmandate.pdf

[6] Center on Budget and Policy Priorities, Senate Tax Bill Revisions Make Its Fundamental Tradeoffs – Big Tax Cuts for the Top, Little Gain for Low- and Moderate-Income Families – Even Harsher, November 2017. https://www.cbpp.org/federal-tax/commentary-senate-tax-bill-revisions-make-its-fundamental-tradeoffs-big-tax-cuts-for-the

[7] New Jersey Policy Perspective, Fast Facts: Millions of New Jerseyans Deduct Billions in State & Local Taxes Each Year, November 2017. https://www.njpp.org/budget/fast-facts-millions-of-new-jerseyans-deduct-billions-in-state-local-taxes-each-year

New Jersey Second Hardest Hit State Under Senate Tax Proposal

Posted on by Jon Whiten

To read a PDF version of this report, click here.

Once the Senate tax proposal is fully phased in, New Jersey’s wealthiest 5 percent of taxpayers would receive an average $11,800 tax break each year while close to 1 in 4 Garden State taxpayers (22 percent) would pay an average of $2,330 more in a year in federal taxes.[1] (Unless otherwise noted, all data in this Fast Facts is on the impact in the year 2027, once the plan is fully phased in.)

In all, the wealthiest 5 percent of New Jerseyans – those with annual incomes over $440,000 a year – would receive about half (49 percent) of the tax cut coming to the state by 2027, while the bottom 60 percent (everyone earning less than $111,000 a year) would get just 28 percent.

While the Senate plan is slightly less tilted to New Jersey’s top earners than the House plan, at its core it retains all the same flaws as the House plan:

  • It increases federal deficits by more than $1.5 trillion over the coming decade
  • Its tax cuts that are heavily skewed to the wealthiest families and large corporations
  • It will lead to cuts to services and programs that working New Jerseyans count on
  • It will make it harder for states to invest in schools, infrastructure, health care and more
  • It punishes New Jersey more than nearly every other state

Nearly 1 in 4 New Jerseyans would face a tax hike by 2027 in large part because the Senate proposal would completely end Americans’ ability to deduct state and local income, sales and/or property taxes paid. (The House plan offered a partial elimination.) At 22 percent, New Jersey has the second highest share of taxpayers facing a tax hike behind only Maryland (27 percent). This is far higher than the total share of Americans – 13 percent ­– who face a tax hike.

A total of 1.8 million New Jersey households deduct a cumulative $17 billion in state income or sales taxes from their federal taxes, while 1.6 million New Jersey households deduct a cumulative $14.9 billion in local property taxes.[2] These deductions help tens of thousands of families in every single Congressional District.[3] New Jersey’s average residential property taxes are $8,549 a year, and 147 of New Jersey’s 565 municipalities (26 percent) have average residential property tax bills of over $10,000 a year.[4]

What’s more, this analysis of the “winners and losers” under the House proposal doesn’t take into account the impact of likely budget cuts that would be paired with these tax breaks. If the tax cuts were eventually paid for through the spending cuts on entitlements and federal programs promised in recent GOP budget proposals, it’s clear that any modest tax cut for low-income or middle-class New Jerseyans would be more than wiped out. (An analysis of the earlier tax framework that took program cuts into effect found the “vast majority of Americans” would lose – even if they took home small tax cuts.[5])

Endnotes

[1] Institute on Taxation and Economic Policy Microsimulation Tax Model, November 2017. Full dataset available at https://itep.org/senatetaxplan/

[2] New Jersey Policy Perspective, Fast Facts: Millions of New Jerseyans Deduct Billions in State & Local Taxes Each Year, November 2017.

[3] New Jersey Policy Perspective, State and Local Tax Deductions Benefit Tens of Thousands of New Jerseyans of All Incomes in Every Congressional District, November 2017.

[4] NJPP analysis of New Jersey Department of Community Affairs, 2016 Property Tax Tables. Available at http://www.nj.gov/dca/divisions/dlgs/resources/property_tax.html

[5] Center on Budget and Policy Priorities, Vast Majority of Americans Would Likely Lose From Senate GOP’s $1.5 Trillion in Tax Cuts, Once They’re Paid For, October 2017.

State and Local Tax Deductions Benefit Tens of Thousands of New Jerseyans of All Incomes in Every Congressional District

Posted on by Sheila Reynertson

By Sheila Reynertson and Jon Whiten

To read a PDF version of this report, click here.

As Republican lawmakers in Congress move forward with their tax proposal, much attention has been paid to the fate of state and local tax deductions, which allow taxpayers who itemize deductions on their federal income taxes to deduct state and local property taxes, and either state and local income taxes or general sales taxes.

These deductions are widely used in high-cost, high-tax states like New Jersey. In all, 41 percent of Garden State households file using these deductions – the third highest share of all states, after Maryland and Connecticut. These households deduct a total of $32.2 billion in state and local taxes each year, the third highest dollar amount after California and New York.[1]

More than 1 in 4 New Jerseyans would face a tax hike by 2027 under the House tax plan in large part because of changes to these deductions. The House’s proposal is to end Americans’ ability to deduct state/local income or sales taxes paid, while capping the amount of property taxes one could deduct at $10,000. While the latter provision is being pitched as a “compromise” to win over reluctant lawmakers from New Jersey and other similar states, nationally just 1 in 13 households would see any benefit from this change.[2] The Senate proposal, meanwhile, completely eliminates all the state and local tax deductions.

Altogether, these tax deductions are used by tens of thousands of New Jersey families across the income spectrum and in every Garden State Congressional District.[3]

And while Republican Congressional leaders point to a doubling of the standard deduction – the amount people deduct from their taxable incomes – as making up for the changes to these itemized deductions, that’s far from the case. That’s because even as the standard deduction would be doubled, personal exemptions would be eliminated and the tax rate for low-income earners would be increased from 10 percent to 12 percent. Even if the standard deduction were tripled, a significant portion of families that now itemize their deductions would still end up with tax increases.[4]

What’s more, the danger posed by the House tax proposal goes far beyond these changes to state and local deductions. In fact, the plan’s benefits are tilted to the wealthiest New Jerseyans, while the cost of the proposal would almost certainly lead to significant cuts to public services and investments on which all New Jerseyans – particularly low- and moderate-income families – rely.[5]

If the proposal moves forward in its current form, states would be squeezed on both ends: deep cuts to federal programs would reduce services for state residents, at the very same time the loss of key federal tax deductions would make it harder for states like New Jersey to raise enough revenue to provide a current baseline of services – much less make up for reduced support from the federal government.

And this problem is not alleviated by the so-called “compromise” in the House plan on the property tax deductions, because property taxes are not a major source of funding at the state level; they are levied by New Jersey’s local governments.

Millions of New Jerseyans Would Lose Ability to Deduct State Income or Sales Taxes

A total of 1.8 million New Jersey households deduct a cumulative $17 billion in state income or sales taxes from their federal taxes. At 40 percent of all taxpaying households, New Jersey ranks third highest in the nation, behind Maryland (45 percent) and Connecticut (41 percent). Of these 1,775,740 households, the overwhelming majority (1,525,000) take the income tax deduction; the remaining 250,740 take the sales tax deduction (taxpayers can’t take both).

The 11th Congressional District – represented by Rep. Rodney Frelinghuysen – has the highest number of households (195,695) and the highest share of households (53 percent) that deduct state income or sales taxes from their federal taxes. The 8th Congressional District – represented by Rep. Albio Sires – has the lowest number (92,738) and share (25.6 percent).

In terms of dollar amounts, the 7th Congressional District – represented by Rep. Leonard Lance – has the highest total amount deducted, at $2.97 billion each year and the highest average amount deducted, at $16,129 per year per family. The 2nd Congressional District – represented by Rep. Frank LoBiondo – has the lowest total amount ($586.3 million a year) and lowest average amount ($4,882 per year per family) deducted.

While a greater share of higher-income New Jerseyans deduct state income and sales taxes, the deduction is not exclusively taken by the state’s wealthiest families. In fact, 48 percent of all New Jersey households that deduct these taxes have annual incomes under $100,000 (19 percent under $50,000 and 29 percent between $50,000 and $100,000). An additional 34 percent have an annual income between $100,000 and $200,000, while 16 percent have annual incomes between $200,000 and $1 million. Just 1 percent of these households have annual incomes over $1 million.

Millions of New Jerseyans Would Lose Ability to Deduct Local Property Taxes

A total of 1.6 million New Jersey households deduct a cumulative $14.9 billion in local property taxes from their federal taxes. At 36 percent of all taxpaying households, New Jersey ranks third highest in the nation, behind Connecticut (37 percent) and Maryland (which at 36.4 percent just barely edges out the Garden State’s 35.7 percent). (Households can take the property tax deduction in addition to the income or sales tax deduction, so many of these 1.6 million taxpayers are from the same pool of the 1.8 million families taxing those deductions.)

Under the House proposal, an estimated 968,000 New Jersey households would no longer receive the property tax deduction, with the number of families taking the deduction falling by 60 percent next year, to just 658,000.[6] That’s because even though they’d still technically be able to take the property tax deduction, many would choose not to because the combination of itemized deductions (which would no longer include state income and sales taxes) would be smaller than the standard deduction. This would be a bad deal for many taxpayers even though the House bill makes the standard deduction more generous.

The 11th Congressional District – represented by Rep. Rodney Frelinghuysen – has the highest number of households (178,845) and the highest share of households (48.4 percent) that deduct local property taxes from their federal taxes. The 8th Congressional District – represented by Rep. Albio Sires – has the lowest number (54,069) and share (14.9 percent).

In terms of dollar amounts, the 11th Congressional District has the highest total amount deducted, at $2.06 billion a year, while the 7th Congressional District – represented by Rep. Leonard Lance – has the highest average amount deducted, at $11,745 per year per family. The 8th Congressional District has the lowest total amount deducted ($420.3 million a year), while the 2nd Congressional District – represented by Rep. Frank LoBiondo – has the lowest average amount deducted ($6,654 per year per family).

While the House tax proposal would currently maintain the property tax deduction up to $10,000, in higher-cost areas of New Jersey, property taxes can exceed $10,000 for many households that aren’t rich. New Jersey’s average residential property taxes are $8,549 a year, and 147 of New Jersey’s 565 municipalities (26 percent) have average residential property tax bills of over $10,000 a year.[7] Three Congressional Districts are home to average property tax deductions that exceed $10,000. And because the proposed $10,000 limit would not be adjusted for inflation or the growth in home values over time, it would hit more and more homeowners in the Garden State as the years went by.

While a greater share of higher-income New Jerseyans deduct local property taxes, the deduction is not exclusively taken by the state’s wealthiest families. In fact, 46 percent of New Jersey households that deduct these taxes have annual incomes under $100,000 (18 percent under $50,000 and 28 percent between $50,000 and $100,000). An additional 35 percent have an annual income between $100,000 and $200,000, while 17 percent have annual incomes between $200,000 and $1 million. Just 1 percent of these households have annual incomes over $1 million.

Endnotes

[1] All data on the use of these deductions in this Fast Facts are from a NJPP analysis of U.S. Internal Revenue Service Statistics of Income data from tax year 2015.

[2] Institute on Taxation and Economic Policy, House Plan Slashes SALT Deductions by 88%, Even with $10,000 Property Tax Deduction, November 2017.

[3] Using the 2015 IRS data referenced in Endnote 1, data by ZIP code were assigned to New Jersey’s 12 Congressional Districts. For ZIP codes in more than one Congressional District, the relevant IRS data were weighted using 2010 US Census population percentages, excluding ZIP codes with populations of less than 950.

[4] Government Finance Officers Association, Impact of Eliminating the State and Local Tax Deduction (Updated with 2015 IRS Data), 2017.

[5] New Jersey Policy Perspective, Fast Facts: New Jersey Third Hardest Hit State Under House Tax Proposal, November 2017.

[6] Institute on Taxation and Economic Policy, Flawed Data from House Leadership Attempts to Hide Tax Hikes Under Proposal, November 2017.

[7] NJPP analysis of New Jersey Department of Community Affairs, 2016 Property Tax Tables. Available at http://www.nj.gov/dca/divisions/dlgs/resources/property_tax.html

Poll: Most New Jerseyans Want Bold Solutions on State Taxes

Posted on by Jon Whiten

Most Garden State voters support bold solutions to fix the state’s broken tax code and boost public investments, according to a new poll commissioned by New Jersey Policy Perspective (NJPP). There is strong, bipartisan support for raising income taxes on the wealthiest 5 percent and for restoring the estate tax for millionaires, and there is majority support for rolling back the recent reduction in the state sales tax, which 60 percent of voters say has not helped them at all.

The three tax reforms included in the NJPP-commissioned poll represent over $2 billion in new revenue that New Jersey desperately needs to meet its obligations, maintain essential services and make targeted investments that can boost opportunity and grow the state’s economy, and they are crucial components of NJPP’s broader proactive tax reform agenda.

This polling confirms what we’ve heard as we’ve traveled the state this year to discuss the crucial issues facing New Jersey. Voters are willing to support tax increases – even on themselves – to create a stronger, fairer economy and fix the Garden State’s financial crisis.

Key findings:

  • Strong majorities believe that the state’s wealthiest 5 percent of households and large corporations are paying “too little” in taxes (69 and 66 percent, respectively).
  • Three-quarters of New Jersey voters (75 percent) support raising income taxes on the top 5 percent of households – including 76 percent of independents and 57 percent of Republicans.
  • Over 60 percent of New Jersey voters (62 percent) support restoring the state estate tax on heirs inheriting $1 million or more – including 57 percent of independents and 52 percent of Republicans.
  • A majority of New Jersey voters (53 percent) support rolling back the 2016 cut in the state sales tax – including 54 percent of Republicans.
  • Three-quarters of New Jersey voters (75 percent) support raising $2.5 billion in new revenue by increasing taxes mostly on the wealthy and large corporations.

As the Governor-elect and the new legislature chart a course for greater economic justice in New Jersey, they must be bold. The old playbook – pursuing a patchwork of modest tax fixes here and there in order to limp through a crisis – will not be enough to put our state back on the right track.

The poll of 750 likely 2017 New Jersey voters, conducted by Anzalone Liszt Grove Research, was conducted September 27-October 3 using professional interviewers. The full poll results can be viewed here: http://www.njpp.org/wp-content/uploads/2017/11/NJPP-ALG-poll-results-fall-2017.pdf

Related NJPP reports:

New Jersey Third Hardest Hit State Under House Tax Proposal

Posted on by Jon Whiten

To read a PDF version of this report, click here.

Once the tax cut proposal unveiled last week by Republicans in the House of Representatives[1] is fully phased in, New Jersey’s wealthiest 1 percent of taxpayers would receive an average $25,100 tax break each year while more than 1 in 4 Garden State taxpayers (27 percent) would pay an average of $2,200 more in a year in federal taxes.[2] (Unless otherwise noted, all data in this Fast Facts is on the impact in the year 2027, once the plan is fully phased in.)

The wealthiest New Jerseyans’ share of the state’s tax cuts would grow over time due to phase-ins of breaks that mostly benefit the rich and the eventual elimination or erosion in value of provisions that benefit low- and middle-income taxpayers. For example, after five years, the bill eliminates a $300 dependent credit that benefits low- and middle-income families while fully repealing the estate tax in year six for the few very large estates subject to the tax.

In all, the wealthiest 5 percent of New Jerseyans – those with annual incomes over $440,000 a year – would receive two-thirds (67 percent) of the tax cut coming to the state by 2027, while the bottom 60 percent (everyone earning less than $111,000 a year) would get just 28 percent.

More than 1 in 4 New Jerseyans would face a tax hike by 2027 in large part because the House proposal would end Americans’ ability to deduct state/local income or sales taxes paid while capping the amount of property taxes one could deduct at $10,000. While the latter provision is being pitched as a “compromise” to win over reluctant lawmakers from New Jersey and other similar states, nationally just 1 in 13 households would see any benefit from this change.[3]

A total of 1.8 million New Jersey households deduct a cumulative $17 billion in state income or sales taxes from their federal taxes, while 1.6 million New Jersey households deduct a cumulative $14.9 billion in local property taxes.[4] New Jersey’s average residential property taxes are $8,549 a year, and 147 of New Jersey’s 565 municipalities (26 percent) have average residential property tax bills of over $10,000 a year.[5]

What’s more, this analysis of the “winners and losers” under the House proposal doesn’t take into account the impact of likely budget cuts that would be paired with these tax breaks. After all, the tax proposal remains incredibly expensive – Congress’ Joint Committee on Taxation estimates it would cost $1.5 trillion over a decade.[6] If the $1.5 trillion in tax cuts were eventually paid for through the spending cuts on entitlements and federal programs promised in recent GOP budget proposals, it’s clear that any modest tax cut for low-income or middle-class New Jerseyans would be more than wiped out. (An analysis of the earlier tax framework that took program cuts into effect found the “vast majority of Americans” would lose – even if they took home small tax cuts.[7])

 

 

Endnotes

[1] H.R.1, The “Tax Cuts And Jobs Act,” https://waysandmeansforms.house.gov/uploadedfiles/bill_text.pdf

[2] Institute on Taxation and Economic Policy Microsimulation Tax Model, November 2017. Full dataset available at https://itep.org/housetaxplan/

[3] Institute on Taxation and Economic Policy, House Plan Slashes SALT Deductions by 88%, Even with $10,000 Property Tax Deduction, November 2017. https://itep.org/house-plan-slashes-salt-deductions-by-88-even-with-10000-property-tax-deduction/

[4] New Jersey Policy Perspective, Fast Facts: Millions of New Jerseyans Deduct Billions in State & Local Taxes Each Year, November 2017. https://www.njpp.org/budget/fast-facts-millions-of-new-jerseyans-deduct-billions-in-state-local-taxes-each-year

[5] NJPP analysis of New Jersey Department of Community Affairs, 2016 Property Tax Tables. Available at http://www.nj.gov/dca/divisions/dlgs/resources/property_tax.html

[6] The Joint Committee on Taxation, Distribution Effects Of The Chairman’s Amendment In The Nature Of A Substitute To H.R.1, The “Tax Cuts And Jobs Act,” November 2017. Available at https://www.jct.gov/publications.html

[7] Center on Budget and Policy Priorities, Vast Majority of Americans Would Likely Lose From Senate GOP’s $1.5 Trillion in Tax Cuts, Once They’re Paid For, October 2017. https://www.cbpp.org/research/federal-tax/vast-majority-of-americans-would-likely-lose-from-senate-gops-15-trillion-in

Millions of New Jerseyans Deduct Billions in State and Local Taxes Each Year

Posted on by Jon Whiten

To read a PDF version of this report, click here.

As Republican lawmakers in Congress move forward with their tax proposal, much attention has been paid to the fate of state and local tax deductions, which allow taxpayers who itemize deductions on their federal income taxes to deduct state and local property taxes, and either state and local income taxes or general sales taxes.

Eliminating these deductions would make it harder for states like New Jersey to raise enough revenue to provide essential services and make public investments that benefit all residents. That’s because, with these deductions, higher-income filers are more willing to support state and local taxes – particularly ones, like New Jersey’s personal income tax, that are levied in a progressive manner.

What’s more, the GOP tax plan isn’t targeting these deductions in a vacuum. Instead, lawmakers are attempting to end this deduction to free up revenue for significant tax cuts for the wealthiest Americans. They are, in essence, targeting a tax feature that mostly benefits upper-income families in order to push through tax cuts that overwhelmingly benefit the extremely wealthy – swapping out a slightly regressive feature for an extremely regressive change to the tax code.[1]

These deductions are widely used in high-cost, high-tax states like New Jersey. In all, 41 percent of Garden States households file using these deductions – the third highest share of all states, after Maryland and Connecticut. These households deduct a total of $32.2 billion in state and local taxes each year, the third highest dollar amount after California and New York.[2]

The latest proposal reportedly on the table would scrap the income and sales tax deductions while preserving the property tax deduction. This would still leave many New Jerseyans high and dry, and the larger tax and budget scheme it’s part of would still have damaging long-term effects on New Jerseyans of all stripes – except the incredibly wealthy.[3]

40 percent of New Jersey households deduct income or sales taxes

A total of 1.8 million New Jersey households deduct a cumulative $17 billion in state income or sales taxes from their federal taxes. At 40 percent of all taxpaying households, New Jersey ranks third highest in the nation, behind Maryland (45 percent) and Connecticut (41 percent). Of these 1,775,740 households, the overwhelming majority (1,525,000) take the income tax deduction; the remaining 250,740 take the sales tax deduction (taxpayers can’t take both).

About half of New Jersey households taking income or sales tax deduction have five-figure incomes

While a greater share of higher-income New Jerseyans deduct state income and sales taxes, the deduction is not exclusively taken by the state’s wealthiest families. In fact, 48 percent of New Jersey households that deduct these taxes have annual incomes under $100,000 (19 percent under $50,000 and 29 percent between $50,000 and $100,000). An additional 34 percent have an annual income between $100,000 and $200,000, while 16 percent have annual incomes between $200,000 and $1 million. Just 1 percent of these households have annual incomes over $1 million.

Tens of thousands of households in every county deduct income or sales taxes

The families who deduct state income or sales taxes from their federal taxes live all over New Jersey. Bergen County has the highest number of such households, at 212,000, while sparsely populated Salem County has the lowest, at 11,000. But the deduction is used by the highest share of households in Hunterdon County (55 percent of all tax filers), while it is used by the lowest share in Cumberland County (27 percent). In terms of dollar amount, Bergen County is home to the highest figure ($2.9 billion) while Salem County is lowest, at $49 million.

36 percent of New Jersey households deduct property taxes

A total of 1.6 million New Jersey households deduct a cumulative $14.9 billion in local property taxes from their federal taxes. At 36 percent of all taxpaying households, New Jersey ranks third highest in the nation, behind Connecticut (37 percent) and Maryland (which at 36.4 percent just barely edges out the Garden State’s 35.7 percent). (Households can take the property tax deduction in addition to the income or sales tax deduction, so many of these 1.6 million taxpayers are from the same pool of the 1.8 million families taxing those deductions.)

Nearly half of New Jersey households taking property tax deduction have five-figure incomes

While a greater share of higher-income New Jerseyans deduct local property taxes, the deduction is not exclusively taken by the state’s wealthiest families. In fact, 46 percent of New Jersey households that deduct these taxes have annual incomes under $100,000 (18 percent under $50,000 and 28 percent between $50,000 and $100,000). An additional 35 percent have an annual income between $100,000 and $200,000, while 17 percent have annual incomes between $200,000 and $1 million. Just 1 percent of these households have annual incomes over $1 million.

Tens of thousands of households in every county deduct property taxes

The families who deduct local property taxes from their federal taxes live all over New Jersey. Bergen County has the highest number of such households, at 184,000, while sparsely populated Salem County has the lowest, at 11,000. But the deduction is used by the highest share of households in Hunterdon County (53 percent of all tax filers), while it is used by the lowest share in Hudson County (17 percent). In terms of dollar amount, Bergen County is home to the highest figure ($2.2 billion) while Salem County is lowest, at $64 million.

Endnotes

[1] For more, see Center on Budget and Policy Priorities, Eliminating State and Local Tax Deduction to Pay for Tax Cuts for Wealthy a Bad Deal for Most Americans, October 2017.

[2] All data on the use of these deductions in this Fast Facts are from a NJPP analysis of U.S. Internal Revenue Service Statistics of Income data from tax year 2015.

[3] See Institute on Taxation and Economic Policy, Benefits of GOP-Trump Framework Tilted Toward the Richest Taxpayers in Each State, October 2017 (https://itep.org/trumpgopplan/) and Center on Budget and Policy Priorities, House GOP Tax Plan Likely to Contain Same Basic Flaws as Earlier Versions of the Plan, October 2017 (https://www.cbpp.org/research/federal-tax/house-gop-tax-plan-likely-to-contain-same-basic-flaws-as-earlier-versions-of)

 

 

Vote ‘Yes’ on Ballot Question 1

Posted on by Gordon MacInnes

This op-ed was published in the October 31 edition of NJ Spotlight.

The book a friend mentioned as riveting was published in 1958. Your 4-year-old loves stories and playing with her peers, but you’re new to the neighborhood. You keep hearing about how helpful yoga is, but have never tried it. The story is your great uncle fought in the Korean War – or did he? How did Elijah Stoner build that nice house downtown in 1820? Your kid wants to learn chess, but you’re no good at it. Or how about a safe, fun place to celebrate Halloween?

To find satisfaction on these and thousands of other quandaries, New Jerseyans made about 45 million trips to their local public libraries last year. In fact, every single day over 120,000 people visit a New Jersey library. Some went to check out books or facts; others to look for jobs and better economic opportunities; others to hear lectures or discuss books; and still others to take part in civic community-building. The range of services and events across the state is vast. Yet despite their importance to our communities, New Jersey’s libraries are in need of a little TLC.

That’s where you come in. On November 7, you can help update and modernize the state’s public libraries by voting “yes” on Question 1. If approved, the Library Construction Bond Referendum will authorize $125 million to fund renovation, modernization and construction projects at libraries across the state. The dollars would go to local libraries in the form of grants that will provide 50 percent of the funds required for construction and renovation projects, with the balance being matched by the libraries themselves.

Public libraries are community-gathering places that have transformed themselves to accommodate a changing society and electronic communications. Yes, you can still check out a book (or a CD), ask for guidance from the reference librarian, hold a meeting, attend a discussion group or story hour or hear from a local author, but public libraries have adapted to new demands and needs. Some libraries offer computer classes in Spanish and ESL classes to assist our growing Latinx population. What has not changed is the uniform courtesy and helpfulness of librarians or the quiet, welcoming atmosphere.

However, the transformation is not complete and much more needs to be done. There are 420 public libraries in New Jersey, ranging from 4 in Salem and Cumberland counties to 62 in Bergen. Most offer hours to match residents’ busy schedules, but many have had to reduce hours because of municipal and county budget cuts (one branch library in Cape May is now open only 4 hours per week; Princeton’s is open 75 hours).

In many libraries wifi and high-speed internet connections are available, but half of New Jersey’s libraries need to upgrade their electrical systems to accommodate better computer access. Many municipal libraries were built early in the 20th century and 40 percent are not yet accessible to the disabled under the Americans with Disabilities Act. To be accessible to all, some older libraries need to install elevators and make interior spaces more accessible. And a New Jersey Library Association survey this year found that about half of libraries have outgrown existing space and need help to expand.

Approval of Question 1 would help with all of these improvements, helping to update and enhance public space and buildings; make libraries more accessible and spur innovation.

In this increasingly contentious atmosphere, libraries remain one of the last vestiges of the public sphere. The importance of New Jersey’s libraries is not in doubt. But their future is. Let’s all take a step to ensure our libraries have a better chance at continuing to grow with our state and our society by voting “yes” on Question 1.

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