A blue wave in high-tax states like New Jersey and New York helped Democrats take back control of the House of Representatives. Now two members of the new majority from New Jersey say they will lead an effort to restore a full federal deduction for state and local taxes to help constituents hit hard by the GOP’s unpopular decision to cap the write-off.
U.S. Reps. Bill Pascrell (D-9th) and Josh Gottheimer (D-5th) said that as soon as the new Congress comes together in January, they will introduce a bill to remove a $10,000 cap on the deduction that’s commonly referred to as SALT that Republicans put in place last year.
“With the new guard in Washington, a new day is coming,” Pascrell said during a news conference yesterday in Ramsey, one of the New Jersey towns that has been hit hard by the new cap, thanks to average property tax bills that topped $12,000 last year.
But even as they promised to wage a hard fight to restore the full SALT deduction, Pascrell and Gottheimer faced questions about how they will convince the Senate, which is still in the hands of Republicans, and GOP President Donald Trump to do an about-face on taxes. In response, they pointed to the results of the midterm elections, which saw Democrats make huge gains in the places that have been hit the hardest by the GOP’s tax law, including New Jersey where 11 of the state’s 12 congressional seats will be in Democratic hands.
“They (Republicans) just got shellacked in this last election because they basically raised taxes on New Jersey, New York, Connecticut and California, they raised tax us on,” Gottheimer said.
Big tax reductions for corporations
Among the many changes included in the 2017 federal tax-code overhaul signed into law by Trump was a lowering of individual income-tax rates and a significant reduction of the federal tax burden for corporations and those with large estates.
While several analyses show many New Jersey residents will get some modest tax relief thanks to those changes and others that came out of the Republican Congress, many others who itemize their deductions are now in line to see a hefty tax increase, largely due to the $10,000 cap on the SALT deduction, which had previously been unlimited. That’s because the average annual property-tax bill in New Jersey is nearly $8,700 and the per capita state income-tax burden for New Jersey residents totals nearly $1,500.
In fact, according to the latest IRS data, the average New Jersey taxpayer who used the SALT deduction during the 2016 tax year was able to write off more than $10,000 in 20 out of the state’s 21 counties. The deduction was worth as much as $24,783 on average for those who took it in Bergen County, where Ramsey is located, and the overall statewide average in 2016 was $18,092, according to the IRS.
Pascrell, Gottheimer and all the other Democratic candidates from New Jersey who won congressional elections earlier this month repeatedly raised the issue of the SALT cap on the campaign trail, as did their counterparts who made big gains in other high-tax states, including New York, and California. Meanwhile, the only New Jersey Republican who backed the tax bill, U.S. Rep. Tom MacArthur (R-3rd), lost his seat.
Pascrell: ‘…tax scam on the backs of the middle class’
“It was no accident,” Pascrell said. “The party that passed a tax scam on the backs of the middle class took a thumping.”
“If you look at the map, and add up the numbers, there were few things clearer on Election Night,” Gottheimer said. “The states that got stuck with paying the bill for the (tax changes) last year, the states where gutting SALT had the biggest impact on their pocketbooks — states like this one — revolted.”
Restoring the full deduction in the new majority-Democrat House shouldn’t be too big of a lift in the new year, especially if former Speaker Nancy Pelosi of California — one of the high-tax states that saw a big blue wave earlier this month — regains her leadership post. But the Senate is a different story since it will stay in Republican hands.
Gottheimer offered a glimpse of the sales pitch he and other House Democrats will be making to colleagues reluctant to restore the full SALT deduction, suggesting it would give Republicans an opportunity to deliver a new tax cut, something the GOP is supposed to favor.
“I’d like to see these folks vote against a tax cut,” Gottheimer said.
Gottheimer: ‘sick and tired’ of paying for other states
But beyond the politics, how to pay for a restoration of the full SALT deduction is another issue that will be difficult to solve and getting agreement even among majority Democrats could be a challenge. Pascrell and Gottheimer acknowledged yesterday that they don’t agree on exactly how to pay for a full restoration of the deduction, which could cost an estimated $600 million.
Pascrell, a member of the tax-focused Ways and Means Committee, suggested one option could be a partial rollback of the corporate tax cut that was implemented as part of the broader 2017 tax overhaul. “That would be one way to do it (and) there are at least three or four other ways to do it,” he said.
But Gottheimer said he wouldn’t increase any taxes to offset the revenues that would be lost to the lifting of the $10,000 cap. He favors looking at more technical changes to the tax code, such as eliminating a tax-free “step up” for inherited assets and closing what’s known as the “private-foundation” loophole for charitable deductions.
“There’s several loopholes that weren’t addressed in the tax-hike legislation,” Gottheimer said.
They are in full agreement, however, that New Jersey and other states where the SALT deduction is a big issue also happen to be those where residents send more in taxes to Washington, D.C. than they get back in the form of federal spending.
“That means opening discussions about all these (program) formulas,” Gottheimer said. “Some of these other states may not like that, but I’m sick and tired of paying their bill.”