Trump Tax Scheme Would Reduce Rates for Highest Earners, Corporations
President’s plan also would shut down deduction for state and local taxes, a favorite in NJ, which is burdened by highest property tariffs in nation
The Trump administration put forward a series of federal tax reforms yesterday, calling on Congress to reduce the top-end income-tax rate and institute a much lower corporate-tax rate, claiming it would juice national economic growth.
But to help offset those cuts and others, the administration is also proposing to eliminate most federal income-tax deductions, including the one for state and local taxes. Understandably, that deduction is treasured by many New Jersey taxpayers as a way to help offset the nation’s highest property taxes.
That element of Trump’s proposal is already drawing significant pushback in New Jersey. And it’s likely to put new pressure on Republicans who represent the state in Congress, as the tax-reform debate now shifts to Capitol Hill and New Jersey residents start to find out how the proposed changes could impact their bottom line.
Trump’s tax proposal, meanwhile, also comes as the president is still refusing to release his own federal tax returns. That means it remains unclear how the changes he wants to enact could benefit him personally, as well as the business interests that he and close family members with White House roles are still tied to.
Trump tax reform
Federal-tax reform was a major policy priority for Trump last year as he ran for president, and many of the proposals released yesterday echo those that were put forward by his campaign. Under a quintessential supply-side plan outlined by administration officials yesterday, Trump would reduce the top-end personal income-tax rate from 39.6 percent to 35 percent, and also slash the corporate-tax rate from 35 percent to 15 percent, all in an effort to grow revenues by expanding the overall tax base.
The plan also calls for a simpler federal tax code, including a reduction of the overall number of federal income-tax brackets from seven to three. The alternative-minimum tax — which is paid by more than 80 percent of New Jersey residents making between $200,000 and $500,000, according to the Washington, D.C.-based Tax Foundation — would also be repealed. Trump’s plan would also end the federal estate tax, echoing a change that New Jersey is in theat the state level.
Eliminating federal deductions
Every federal income-tax deduction except those allowed for charitable contributions and mortgage interest would also be eliminated under the Trump plan, a change that could hit those with higher incomes who stand to benefit from the overall tax-rate reductions. The standard deduction would also be increased from $12,600 to $24,000, a change that could help low-income taxpayers.
However, it’s unclear exactly how Trump’s proposals would affect individual taxpayers because the administration has not released several key details, including the income ranges for the proposed new tax brackets.
But some recent studies have shed light on how the proposed elimination of the federal deduction that allows taxes paid to state and local governments to be excluded from federal taxable income would hit taxpayers in New Jersey. That’s because New Jersey homeowners paid average property tax bills of, the highest bills in the nation, and New Jersey also maintains some of the highest marginal income-tax rates in the country, including an 8.97 percent tax on earnings over $500,000.
In all, New Jersey is among the six states where residents benefit the most from being able to deduct their state and local taxes, according to the Tax Foundation, and more than a third of the state’s taxpayers would take a hit worth an estimated $3,500 if state and local taxes can no longer be deducted from federal taxable income, according to the nonpartisan Tax Policy Center.
Trump administration officials said yesterday that they are already engaging in close talks with leaders from the U.S. Senate and House of Representatives as part of an effort to convert the proposals into legislation that can be ultimately passed and signed into law. They also said enacting tax reform is a top priority for the Republican president, while both houses of the Congress are currently controlled by Republicans.
Bad luck with bills?
But Trump was unable to convince lawmakers last month to pass the version of a bill that he preferred that would have repealed the federal Affordable Care Act. And most of the Republicans lawmakers from New Jersey were among those that decided toon the issue of healthcare reform after they determined the bill would not be good for constituents back home.
U.S. Rep. Leonard Lance (R-7th) was among those who went against Trump on healthcare, and he pledged yesterday to also be a “leading voice” in support of keeping the state and local tax deduction as tax-reform negotiations are expected to play out in Congress over the coming weeks. But Lance also said there are parts of Trump’s proposal that he is in favor of, and he singled out lower tax rates for individuals as a key goal.
“It has been more than a quarter century since comprehensive tax reform was last enacted in Congress,” Lance said. “It’s time to level the playing field for U.S. companies so they can invest in and create new American jobs and compete with rivals abroad. And it is time for hard work to be rewarded and not punished by an outdated system.”
U.S. Rep. Bill Pascrell (D-9th) also said he’s concerned about the elimination of the federal tax deduction for state and local taxes, saying it would effectively force middle-class taxpayers to foot the bill for the reduced rates for corporations. “I am for reducing corporate taxes, but not on the backs of the middle class,” Pascrell said. “I can’t imagine any New Jersey legislators supporting this proposal.”
But he was far more critical of Trump’s overall proposal than Lance, suggesting the tax cuts would end up adding to the nation’s already sizable federal deficit. “Trump’s tax plan is a rerun of the failed supply-side economics that exploded our deficit during the George W. Bush administration,” Pascrell said. “Tax cuts for the wealthy do not pay for themselves, do not create jobs, and do not ‘trickle down.’”
No help for working class
Jon Whiten, vice president of New Jersey Policy Perspective, a liberal think tank based in Trenton, said the proposed tax reforms also directly conflict with Trump’s 2016 campaign messaging, including his regular appeals to working people.
“This plan does very little to help the struggling working class,” Whiten said. “Instead, it offers its largest benefits to the richest Americans and very profitable corporations, while costing what will likely be trillions and trillions of dollars.”
Amanda Ballantyne, national director of the Main Street Alliance, a coalition of small-business owners, also suggested the proposed tax reforms would benefit big corporations at the expense of the nation’s many small businesses.
“Despite claiming to be a champion for small businesses, President Trump clearly champions little but his own bottom line and that of his friends,” Ballantyne said.
But FreedomWorks, a conservative group based in Washington, D.C., was among those that praised Trump’s plan yesterday, saying its representatives would now be working to help make sure the reforms clear the Congress.
“It is a big step in the right direction and would spur economic growth,” said Adam Brandon, the group’s president. “It provides a tax cut to Americans, accomplishes the needed goal of tax simplification, and lowers the United States’ excessive corporate tax rate.”