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NJ Congressional Delegation Deeply Divided on Trump Tax Reform

It comes down to SALT, a threatened tax break that lets residents deduct local and state taxes, a lifeline for many New Jerseyans

murphy SALT
Gov.-elect Phil Murphy (center) flanked by members of the New Jersey congressional delegation at a press conference yesterday to speak out against the GOP tax-reform plan.

A crucial vote on President Donald Trump’s overhaul of the federal tax code is expected to take place this week in Washington, D.C., and it’s putting new pressure on members of New Jersey’s congressional delegation. The reason: A key tax deduction that helps to soften the blow of the state’s sky-high property-tax bills is now hanging in the balance.

Democrats who represent New Jersey in Congress are adamantly opposed to any changes that could be made to a federal deduction that’s currently allowed for taxes paid to state and local governments, commonly referred to as SALT, and they’re challenging their Republican counterparts who are in the majority to stand with them in firm opposition.

“There should not be one representative from the state of New Jersey who would even consider this bill,” said U.S. Rep. Bill Pascrell (D-9) during a news conference that was held in Newark yesterday.

But at least one Republican, U.S. Rep. Tom MacArthur (R-3), is supporting the House’s version of the tax-code overhaul after it was amended to allow for up to $10,000 in local property taxes to be shielded from federal taxes. In fact, MacArthur pitched the proposed tax overhaul, which also calls for lowering personal income-tax rates and corporate levies, during an event in Ocean County yesterday that also featured two top Trump administration officials visiting from Washington.

“I have observed that many people are reflexively against or reflexively a ‘no’ … without ever looking at any of the details,” MacArthur said in an interview after the event ended. “They’re pushing one item that’s good for a soundbite.”

Christie vs. Murphy

The proposed tax changes have also divided the state’s current governor, Republican Chris Christie, and his newly elected successor, Democrat Phil Murphy. Christie appeared alongside MacArthur to promote the projected economic impact of the proposed tax overhaul yesterday, while Murphy joined with the Democrats in Newark to air concerns about the impact on the SALT deduction, but also the return of so-called “trickle-down economics.”

The state’s business community, meanwhile, also seems to be in agreement that the federal legislation needs to be revised, suggesting the proposed changes, taken together, could lead more residents and businesses to flee the state.

After focusing for much of this year on unsuccessful efforts to roll back the Affordable Care Act, also known as Obamacare, Trump and other Republicans in Washington have made the passage of a large-scale overhaul of the tax code that was first put forward in April a top priority for the remaining weeks of 2018. Though dueling bills have now been introduced in both the House and the Senate, both pieces of legislation seek to stimulate more economic growth by reducing personal-income tax rates and lowering the corporate levies. Both bills would also make costly changes to the estate tax, with the Senate bill doubling the current threshold of $5.49 million for individuals, and the House bill phasing in an outright repeal of a tax that right now is paid by only the nation’s wealthiest residents.

Another policy goal is to simplify the tax code and make it more equitable, which is where the elimination of different tax deductions come in. While both houses’ legislation calls for the standard deduction to be nearly doubled, they would also repeal personal exemptions worth $4,050. Deductions for student interest and medical expenses are among others that could be cast aside in the final bill that goes before lawmakers in both houses.

Fewer brackets

The House bill would also streamline the current income-tax framework of seven tax brackets, reducing it to four. The Senate version keeps seven brackets, but lowers the rates slightly for nearly all of the brackets. The House bill, meanwhile, would also keep a top-end income tax rate of 39.6 percent in place for married couples earning $1 million or more, or individuals topping $500,000, but the Senate bill lowers the top-marginal rate on those taxpayers to 38.5 percent. That means it all depends on how much someone makes, whether they own a home, and how big their family is, among other items, to determine whether they would actually see a tax cut of any significant amount.

On the business side, both bills would slash the corporate-income rate from 35 percent to 20 percent, though the Senate version would delay that cut until 2019.

Murphy, a former Goldman Sachs executive, said that it’s been proven in the past that the hope that tax breaks for corporations and the wealthy, what he labeled as “trickle-down economics,” is not a successful strategy for generating growth. And those cuts at the top would come even as middle-class New Jersey residents will lose the ability to deduct state sales and income taxes — and at least a portion of their local property tax bills.

“It’s bad no matter how you slice it,” Murphy said during the event in Newark. “It’s a devastating blow.”

“It’s a tax cut for the very wealthy, and for big corporations, and the middle class and seniors will pay a huge price,” he said.

Jon Whiten, vice president of New Jersey Policy Perspective, a liberal think tank, said the Republicans’ bills threaten to hike taxes on one out of every four New Jersey residents. And even if some New Jersey residents do see a small tax decrease, Whiten said the overall loss of revenue for the federal government — up to $1.5 trillion over a decade by some estimates — will likely bring on massive cuts to a raft of federal programs. The impact of the cuts would more than offset the benefits of any tax reduction for most New Jersey residents, he said.

“This is not tax reform. It is a tax scam, it is a tax sham,” said Whiten, whose organization released a new report yesterday that projects the proposals’ impact on New Jersey residents.

Pascrell, a member of the House Ways and Means Committee, also pointed to Republicans’ failed efforts earlier this year to add steep Medicaid cuts to legislation that sought to repeal the Affordable Care Act.

‘Coming after Social Security’

“When they can’t pay for this bill, they’re going to come after Social Security, Medicare and Medicaid,” Pascrell said. The Democrats are hoping that, in the wake of Murphy’s convincing election last week, the pressure on Republicans like U.S. Reps. Leonard Lance (R-7) and Rodney Frelinghuysen (R-11), whose districts would be particularly hard hit, will be too strong to see them vote with the House majority.

But even as the Democrats ramped up the rhetoric yesterday, MacArthur was talking up the proposed tax changes with U.S. Treasury Secretary Steve Mnuchin and President Donald Trump’s daughter, Ivanka, during the event billed as a townhall meeting in Berkeley Township.

“The president’s primary objective is to ensure middle-income tax cuts, so we are working to do exactly that,” said Ivanka Trump, who serves as a presidential adviser.

After the event ended, MacArthur explained that he, like his Democratic counterparts and some other Republicans was originally opposed to the House legislation since it called for a full repeal of the SALT deduction. But after House leaders restored the write-off for up to $10,000 in local property taxes, he decided to support the measure. He also noted that in New Jersey, where the average property tax bill is about $8,500, a $10,000 threshold won’t be triggered for many homeowners.

“The reality is, $10,000 is enough for the vast majority of the people in New Jersey,” MacArthur said. He also pointed to the overall benefits that lower corporate rates and other proposed tax-policy changes could have on the broader economy. In fact, the Tax Foundation, a conservative group based in Washington, D.C., has estimated the tax changes could push income growth to near 3 percent, and gross-domestic-product expansion to near 4 percent.

But in New Jersey, both the New Jersey Business & Industry Association and the state Chamber of Commerce have come out against the House bill, noting both the changes to the SALT deduction that have been proposed and to a write-off that’s currently permitted for home-mortgage interest.

“We feel Congress can and should do better,” said Michele Siekerka, the NJBIA’s president and chief executive.

“We urge everyone in New Jersey to contact their Congressional representatives and tell them to oppose this legislation and to replace it with a bipartisan approach that fixes the tax code in a way that is fair and equitable for everyone,” said Tom Bracken, the president of the state chamber.

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