From the Record:
Several deductions that help offset the high cost of housing in North Jersey and the property taxes that come with it may be scaled back as the White House and Congress debate ways to overhaul the federal tax code.
Among the 50 states, New Jersey is one of the biggest beneficiaries from the deductions of local property taxes, state income taxes and mortgage interest.
Given how federal policy usually scales back the value of benefits as wealth increases, and targets spending toward lower-income beneficiaries, the deductions represent a rare case where a high-wealth state such as New Jersey comes out near the top from a federal policy.
But economists also see these deductions as an expensive “tax expenditure,” with a national price tag last year of $181 billion that would have otherwise been owed to the federal government, according to the Congressional Research Service. And that high price tag makes them a tempting target for House and Senate tax committees trying to rewrite the code to meet different policy goals without raising rates.
For New Jersey, the three breaks combined were worth an average $9,879 per tax filer in 2011, about 80 percent higher than the national average.
One plan proposed by President Obama would cap the value of the deductions and bite harder in New Jersey than many other states.
A study by Citizens for Tax Justice found that while only 3.6 percent of taxpayers nationwide would pay more under Obama’s plan, the rate would be 6.7 percent — almost double the national average – in New Jersey.
And in some parts of North Jersey, tax data suggest the impact would be far higher.
“New Jersey is one of the richest states, and people pay a fair amount in property and income taxes, and they take deductions for them,” said Steve Wamhoff, the legislative director at Citizens for Tax Justice, which generally favors higher taxes on the rich. “It’s a combination of those things.”
Some in New Jersey say the wealthy can afford to pay more.
Obama, in his 2014 budget proposal, called for capping the value of the three deductions, along with other things, at 28 cents on the dollar for taxpayers in the upper-income brackets.
Generally, that means there would be no impact on people in the 28 percent bracket or lower, defined this year as couples filing jointly with $223,000 in taxable income or less. Those in higher brackets, whose deductions right now are worth 33 to 39.6 cents per dollar, would have to pay more.
Pascrell said he would prefer a cap, like the kind Obama proposed, to a total phase-out of deductions for mortgage interest and state and local taxes. But he said he’s not sure the cutoff Obama set is the right one.
“The president’s proposal is to limit itemized deductions, not eliminate any individual tax expenditure. It acts as an aggregate limitation,” Pascrell said. “That path is worth looking at, but my cutoff would be a higher one.”