A Bergen County homeowner who makes $ 150,000 a year and owns a $ 600,000 home can expect to pay up to $ 12,000 in property tax and $ 5,000 in state income tax.
Until 2018, taxpayers were able to deduct this full amount from their federal income tax returns. But Republicans capped that tax break at $ 10,000.
For a couple filing an application together in this case, it means up to $ 1,550 more in federal taxes, according to the New Jersey Society of CPAs.
This scenario has played out across New Jersey in recent years.
The state and local tax deduction, known by the acronym SALT, dates back to the Civil War and was based on the philosophy that Washington should tax the same money paid to state and local governments.
That philosophy went out of the window in 2017 when then-President Donald Trump and Republicans of Congress scaled it back to fund their $ 1.9 trillion tax cut.
With Democrats now in control of the White House and Congress, federal lawmakers from New Jersey and other high-tax countries are using their newfound clout to force President Joe Biden to repeal, or at least raise, the current $ 10,000 limit .
The battle to restore local tax breaks is now in full swing, and New Jersey lawmakers in Washington say they believe it can actually happen this year.
Here's what you need to know:
The cap hurts high-tax countries like New Jersey
The deduction limit has had a disproportionate impact on New Jersey and other high-tax countries. A study by Moody & # 39; s Analytics found that 16 of the 30 counties with the largest estimated percentage loss in home value due to taxation law were in Garden State.
United Van Lines' 2020 Moving Survey found that New Jersey, New York, Illinois, Connecticut, and California were the five states where the most people were leaving.
Rep. Josh Gottheimer, D-5th Dist., Suggested the loss of tax withholding encouraged wealthy taxpayers to flee New Jersey.
“As people live in the state – and we know people are leaving in droves – it puts more strain on middle-class families who need to fill the void, and affects programs that work well for lower-income families are, "he said.
A study by the Progressive Institute of Taxes and Economic Policy found that 30% of New Jersey residents would receive a tax cut if the cap were lifted – a larger percentage than any other state – and 80% of beneficiaries an average income of $ 216,000 or more would have less.
Why the Republicans capped the withdrawal in the first place.
In the words of Willie Sutton when asked why he robbed banks, "there is the money."
The state and local deduction has been in Republicans' crosshairs for decades as the party sought new sources of income to lower taxes, especially for those with higher incomes.
Then-President Ronald Reagan was unable to completely get rid of it on his 1986 tax overhaul, but Congress temporarily removed the deduction for state and local sales taxes.
In this case, the proceeds from capping the $ 10,000 deduction provided much of the money needed to fund a tax cut that independent studies have shown brought most of the benefits to the rich and corporate.
The fact that the shortened tax break would be the hardest for democratically ruled states was not lost for Republicans either.
A separate study by the Institute for Taxes and Economic Policy found that the tax burden increases the proportion of income taxes paid to the federal government by residents of six states: New Jersey, New York, California, Connecticut, Maryland, and Massachusetts. All of them have two Democratic US Senators and Democratically controlled state legislatures.
"Republicans targeted and bragged against our states in 2017," said Rep. Bill Pascrell Jr., D-9th Dist. a member of the House Ways and Means Committee.
Annual studies by the State University of New York's Rockefeller Institute of Government and New York State Comptroller Thomas DiNapoli showed that New Jersey and New York taxpayers are the ones who subsidize Republican-run states, even with state and local tax deductions.
Kentucky, home of Senate Republican Leader Mitch McConnell, who campaigned for the 2017 tax bill, received $ 63 billion more than taxes from Washington in 2019. Texas got more than $ 19 billion. Florida, nearly $ 51 billion.
On the other hand, New Jersey got $ 10 billion less while New York got almost $ 23 billion less.
Why the legislature feels that it can actually restore the tax break now
Supporters of Congress formed a new caucus on Thursday to push for the cap to be lifted.
The founding members were from New Jersey, New York (home of Senate Majority Leader Chuck Schumer), Illinois (home of Senate Majority Whip, Dick Durbin), California (home of House Speaker, Nancy Pelosi), and Maryland (home of Majority Leader of the House, Steny Hoyer)). These four are the most powerful members of Congress.
There's strength in numbers, too: the 32 original members of the SALT Caucus of Congress are enough to cut Biden's tax and spending proposals, including his $ 2 trillion infrastructure plan, when calls to change the $ 10,000 cap be ignored.
"This has to be part of the conversation," said Rep. Thomas Suozzi, D-N.Y., A co-chair of the new caucus.
Your argument in three words: Help for the middle class.
"For this reason we created the SALT-Caucus to convey the case to our members and to explain to our colleagues that this affects medium-sized families in places where we live and also families that are under pressure", said Gottheimer.
"This is how we will win. You will win, member by member here, representing the case and finding out the facts."
Before the 2017 Tax Act, more than 40% of New Jersey residents used state and local tax withholding, just behind Maryland and Connecticut, according to the Tax Foundation, a research group whose board of directors includes two former Republicans of the House.
"It's the young couple trying to buy their first New Jersey home and getting a sticker shock about the lifting of SALT," said Rep. Tom Malinowski, D-7th Dist. "It is the retired couple who want to stay close to their grandchildren and not have to move out of the state."
This is what a final deal could look like.
Republicans argue that the rich will benefit from the withdrawal.
"These civil workers, these teachers, cops, and firefighters don't list their deductions," said Texas Rep. Kevin Brady, senior Republican on the House Ways and Means Committee on Taxes and main sponsor of 2017 Tax Law. "What about all the other Americans who don't live in these high-tax countries? Why should low-income and middle-income taxpayers subsidize the rich?"
"You should rename this caucus, the millionaire caucus tax break," he said.
According to the Joint Tax Committee, 61% of those who would benefit from the cap lifting would earn more than $ 200,000, and 52% of the tax break would go to those who would earn more than $ 1 million.
At the same time, 66% of those who claimed the vent in 2019 earned less than $ 200,000, which is middle-class in high-cost states like New Jersey, according to the committee.
Still, the idea is on the table to keep a higher withdrawal limit for people with higher incomes.
Some have suggested raising the $ 10,000 cap, but not removing it. Just raising it to $ 24,000 for married couples, such as Rep. Mikie Sherrill, D-11th Dist., Once proposed in bipartisan legislation, would bring tax breaks to many middle-class homeowners.
Even some opponents of the total repeal, such as MP Alexandria Ocasio-Cortez, D-N.Y., Conceded that some adjustments were warranted.
"I think there is a conversation going on about the cap itself and what level it is appropriate at and where we can help families who are really deeply affected – because there is a disproportionate impact in blue states and coastal states," she said.
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Jonathan D. Salant can be reached at [email protected]. Follow him at @JDSalant.
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