Cindy Myers, the president of a moving company based in Mahwah, said she’s seen a big uptick in out-of-state moves in the past three years.
Her customers air a common complaint. “It’s taxes,” she said, “it’s ‘I can’t afford to live here.’”
Myers shared her story yesterday at a news conference organized by U.S. Rep. Josh Gottheimer (D-5th), who wants to bring attention to the real-world impact of SALT, a new cap on federal income-tax deductions for state and local taxes.
The $10,000 SALT cap was enacted by President Donald Trump in 2017 as part of a broader overhaul of the tax code. But many taxpayers are just feeling its pinch for the first time this month, as they file federal returns under the new rules, only to learn that the new limit means they owe the feds more money.
“Our phones in our office, my phone is ringing off the hook with people saying, ‘Wait a second, what is going (on) here?” said Gottheimer, who’s introduced legislation seeking to rescind the cap.
Double whammy for millionaires?
Concerns about the $10,000 cap are also being raised in Trenton this month, as lawmakers review Gov. Phil Murphy’s budget proposal for fiscal year 2020, which includes a call for a higher income tax on earnings over $1 million. The worry is that high taxes are pushing high earners who carry a big share of the state’s income-tax burden to move to places with lower taxes, where the new SALT cap is less of a concern. But nonpartisan fiscal analysts who testified in Trenton last week said there’s no evidence at this point of a mass exodus, and a recent report from Moody’s Investors Service said the jury is largely out on this issue.
“Many people will feel the full brunt of the SALT deduction cap for the first time this tax season, and it is too early to discern whether the federal tax changes enacted in 2017 will lead to increased population migration,” the report said.
For over 100 years, the uncapped SALT write-off offered some solace for New Jersey taxpayers who are hit with some of the highest property-tax and income-tax bills in the country. In fact, according to Internal Revenue Service 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 Myers’ moving company is located. But even though she says out-of-state moves have tripled in recent years, it’s too soon to determine how the SALT cap is affecting the broader New Jersey landscape.
2018 real estate sales strong
Ilene Horowitz, president of New Jersey Realtors, also spoke at the news conference yesterday, saying that 2018 was a strong year for the state’s real-estate market, although she did raise concerns about the potential impact of the cap.
“Professionally speaking, for 2019, I think it’s too soon to see the effects of SALT,” Horowitz said.
The nonpartisan fiscal analysts who testified during budget committee hearings in Trenton last week also focused on real-estate data as they answered questions about outmigration. They noted receipts from New Jersey’s realty-transfer fee are up compared with the same point in the past fiscal year, which suggests homes are still being bought up even as people leave.
“Our real-estate taxes are doing fine. The fundamentals of the economy are still performing well,” said David Drescher, senior fiscal analyst for the Office of Legislative Services.
Meanwhile, analysts from the state Department of Treasury said they don’t expect a big drop-off in overall tax revenues this year, just a delay in income-tax payments as many taxpayers hold off filing until the final moments before the April 15 deadline since they no longer get a generous federal tax break.
“We’re expecting roughly about $3 billion in April, and that will be a very high April compared to historical trends,” said Martin Poethke, director of Treasury’s Office of Revenue and Economic Analysis.
Outmigration: a familiar fear
Concerns about outmigration driven by high taxes have been aired for over a decade in New Jersey. Earlier this year a report from United Van Lines fanned fears by saying it had noticed an uptick, at least among its customers.
But the Moody’s report indicated that the Garden State is in the middle of the pack among U.S. states when it comes to outmigration. Further, it noted that overall outmigration rates were actually higher before the Great Recession than in recent years. Moreover, New York — which is not exactly a tax haven — is the leading place people go to from New Jersey, Moody’s said, which suggests that taxes aren’t the biggest factor that’s been influencing moves, at least thus far.
“Job opportunities and demographic trends, more so than tax rates, influence relocation from one state to another,” said Marcia Van Wagner, vice president and senior credit officer for Moody’s. “That said, the $10,000 SALT cap will be widely felt for the first time this tax season, and could spur some out-migration from high-tax states.”
A particular a concern for many lawmakers is recent U.S. Census Bureau figures that show even as New Jersey’s population has been growing — likely due to births and immigration — there’s been a net loss of adjusted gross income in recent years. Some have chalked that up to outmigration among high earners, and fear it’s a leading indicator of bigger trouble.
“Since 2004, we haven’t had one year where more came in than left, and it’s accelerating,” Sen. Steve Oroho (R-Sussex) said during one of last week’s budget meetings.
Gottheimer also pointed yesterday to the results of a recent poll that found only 18 percent of New Jersey residents believe they are getting their money’s worth for the tax bills they pay. He said his goal is to make New Jersey a more attractive place for businesses and individuals, and that effort includes restoring the full SALT write-off.
“Let’s get it passed and get these moving trucks coming into our state with families — not packed up and headed out,” he said.