Parting shot or return to ugly reality?

From Pensions and Investments:

Fiscal woes greeting N.J. governor

New Jersey’s Republican state treasurer sharply reduced the New Jersey Pension Fund’s assumed rate of return, producing a financial and political dilemma for Gov.-elect Phil Murphy, a Democrat, who will be sworn in later this month.

Last month, Treasurer Ford Scudder announced a cut in the assumed rate of return to 7% from 7.65% for the fiscal year that starts July 1, the second rate cut in 12 months. Last February, he reduced the rate to 7.65% from 7.9% for the current fiscal year.

The lower rate means cash-strapped municipalities and the state must raise more money to feed the severely underfunded New Jersey Pension Fund. Mr. Murphy will be hard-pressed to find politically palatable and sufficient additional revenue sources, even from a Democratic Party-controlled state Senate and Assembly.

As of July 1, the funding ratio ​ was 59.3%, according to the state Treasury Department. This statutory funding status includes the estimated present value of the state lottery. Last year, Gov. Chris Christie signed a law making the lottery an asset of the pension fund, using the proceeds to cover part of the state’s pension contribution.

Pension experts say the 7% assumed return figure represents a more realistic rate given forecasts for lower stock market gains and modest interest rate increases. They also said the size of the cuts within the time frame is unusual.

“It is significant, but we are getting realistic,” said Thomas Brendan Byrne Jr., chairman of the State Investment Council, which develops policies for the Treasury Department’s division of investment to manage the pension fund’s investments. The Trenton-based fund has $76.6 billion in assets.

“Timing aside, the direction is clear,” Mr. Byrne said. “Experts say stocks will return to single-digit gains and long-term interest rates will stay low. We can’t bet the ranch on stocks.”

The New Jersey Pension Fund produced a 13.07% return for the fiscal year ended June 30. The annualized return for the past three fiscal years was 5.25%; for five years, 8.75%; and for 10 years, 5.55%.

Some observers of New Jersey government said the rate reduction appears to have had some political overtones.

Marc Pfeiffer, assistant director, Bloustein Local Government Research Centers, Bloustein School of Planning and Public Policy, Rutgers University, New Brunswick, N.J., said the rate reduction can be seen “as a parting shot” by Mr. Christie toward his successor.

Posted in Economics, New Jersey Real Estate, Politics, Property Taxes | 109 Comments

Income inequality in NJ

From the Star Ledger:

See how your town scores on income inequality

There are multi-million dollar McMansions and blue-collar families just trying to make ends meet. Across New Jersey, the gap between the rich and the poor continues to get wider.

But how are things changing in your town?

The Census calculates income inequality using a measure called the Gini index, which assigns a value between 0, which would mean complete equality, and 1. The closer a score is to 1, the more wealth is concentrated among fewer people and the bigger the income inequality.

As a state, New Jersey boasts a score of 0.4782. That’s slightly higher than the last five-year period, 2007 to 2011, measured by the Census, but lower than the national average of 0.4804 over the last 10 years.

Posted in Demographics, Economics, New Jersey Real Estate | 64 Comments

Snow Day Jobs Day!

From Bloomberg:

U.S. Added Fewer Jobs Than Expected in December

U.S. payroll gains slowed by more than forecast in December, wages picked up slightly and the jobless rate held at the lowest level since 2000, adding to signs of a full-employment economy.

Employers added 148,000 workers, compared with the 190,000 median estimate of economists surveyed by Bloomberg, held back by a drop in retail positions, a Labor Department report showed Friday. The jobless rate was at 4.1 percent for a third month, while average hourly earnings increased by 2.5 percent from a year earlier, after a 2.4 percent gain in November that was revised downward.

“It’s a little soft across the board but overall, when you’re this close to full employment, I think it’s reasonable to see some slowdown in job gains,” said Jeremy Schwartz, a U.S. economist at Credit Suisse in New York. “This year we should probably expect to see some slowdowns in job gains — it’s just harder to add jobs when there’s a smaller pool to choose from.”

“This is a benign slowdown,” Schwartz said. “The Fed would probably be happy to see this slowdown.”

The breakdown of December data across industries showed solid gains of 30,000 in construction and 25,000 in manufacturing. Retailers cut 20,300 positions during the height of the holiday-shopping season, bringing total gains among service providers to 91,000, down from 176,000 in November.

Revisions to prior reports subtracted a total of 9,000 jobs from payrolls in the previous two months, according to the report. November’s reading was revised upward to 252,000 from 228,000.

Posted in Economics, Employment, National Real Estate | 182 Comments

37% of large metros now overvalued

From HousingWire:

CoreLogic: Home prices jump 7% annually in November

CoreLogic’s HPI showed home prices increased 7% from November 2016 to November 2017 and jumped 1% from October to November.

But these home price increases are expected to slow into 2018 as the CoreLogic HPI Forecast shows home prices will increase by just 4.2% from November 2017 to November 2018. Monthly, home prices are predicted to increase 0.4% from November to December.

The CoreLogic HPI Forecast is a projection of home prices using the CoreLogic HPI and other economic variables. Values are derived from state-level forecasts by weighting indices according to the number of owner-occupied households for each state.

“Rising home prices is good news for home sellers, but adds to the challenges that home buyers face,” CoreLogic Chief Economist Frank Nothaft said. “Growing numbers of first-time buyers find limited for-sale inventory for lower-priced homes, leading to both higher rates of price growth for ‘starter’ homes and further erosion of affordability.”

CoreLogic’s Market Condition Indicators showed 37% of the largest 100 metropolitan areas in the U.S. are now overvalued in terms of housing stock.

“Without a significant surge in new building and affordable housing stock, the relatively high level of growth in home prices of recent years will continue in most markets,” CoreLogic President and CEO Frank Martell said. “Although policymakers are increasingly looking for ways to address the lack of affordable housing, much more needs to be done soon to see a significant improvement over the medium term.”

Posted in Economics, Housing Bubble, Housing Recovery, National Real Estate | 167 Comments

Update on the most important town in NJ

From Patch:

These Development Projects Could Transform Wayne In 2018

There are nine TEN development projects in the works that could change the township and continue to improve the local economy.

In his annual State of the Township address, Mayor Christopher Vergano stated that the following projects “will come to fruition” this year:

A 122-room Marriot Hotel on Route 46 West
CarMax’s redevelopment of the former State Farm property off of Route 23 North
A 150-unit assisted living facility on Hamburg Turnpike on the former Partners in Research property
A new 100,000-square-foot retail center on the Wayne Hills Mall property.
A 400,000-square-foot warehouse at 150 Totowa Road
A new Hilton Hotel at the former Bally’s health club on Old Turnpike Road off of Route 46
SHAKE SHACK (grim edit)

A controversial apartment and retail complex is going on Route 23 South. A five-story apartment building, 12,800-square-foot building and a 262-seat restaurant to be built on the 10-acre site.

The Willowbrook Mall-area will see two major developments this year.

Also, Dave & Buster’s is expected to open only its second New Jersey location Feb. 19. The entertainment and dining establishment is being constructed on the second floor of the Sears store at the Willowbrook Mall.

Also, Cinemark will open a 12-screen movie theater at the old Sears Auto Center at the Willowbrook Mall.

Vergano mentioned the township’s AAA bond rating, which is attributed to a “very strong financial position, an affluent wealth and income profile and a considerable tax base.”

Posted in Demographics, Economics, Humor, New Jersey Real Estate | 132 Comments

Loopholes and tax cuts

From the NYT:

Democrats in High-Tax States Plot to Blunt Impact of New Tax Law

Democrats in high-cost, high-tax states are plotting ways to do what their states’ representatives in Congress could not: blunt the impact of the newly passed Republican tax overhaul.

Governors and legislative leaders in New York, California and other states are considering legal challenges to elements of the law that they say unfairly single out parts of the country. They are looking at ways of raising revenue that aren’t penalized by the new law. And they are considering changing their state tax codes to allow residents to take advantage of other federal tax breaks — in effect, restoring deductions that the tax law scaled back.

One proposal would replace state income taxes, which are no longer fully deductible under the new law, with payroll taxes on employers, which are deductible. Another idea would be to allow residents to replace their state income tax payments with tax-deductible charitable contributions to their state governments.

Such ideas may sound far-fetched. And until recently, they were mostly the province of tax professors and bloggers. But they are now getting serious consideration in state capitols where some lawmakers see the Republican law as a thinly veiled assault on parts of the country that typically vote for Democrats.

Companies, of course, have long sought to exploit loopholes in the tax code. Governments, as a rule, have not. State leaders, however, said Congress, in singling out certain states, had broken an implicit compact with the states.

“The game has changed,” said Stephen M. Sweeney, the Democratic president of New Jersey’s Senate. “They’ve completely turned the tables against us.”

Another idea would be for states to partly or completely replace their income taxes with payroll taxes paid by employers, similar to existing taxes for Social Security and unemployment insurance.

In theory, such a move wouldn’t change after-tax income for either companies or individuals. It would just change where the tax checks were coming from. Companies would reduce workers’ pay by the amount of the payroll tax, and would be able to deduct the payments on their federal taxes. Because they would never receive the money, workers wouldn’t be taxed on it.

“In effect, it preserves the state income tax deduction,” said Dean Baker, a liberal economist who has been pushing for the plan.

Republicans argue there is a much simpler solution for high-tax states: lower their taxes.

Joseph Pennacchio, a Republican state senator in New Jersey, said that he opposed limiting the state and local tax deduction but that New Jersey should focus less on gaming the system and more on lowering its tax burden. There are signs that may be happening. Mr. Sweeney, the Senate president, said that because of the new tax law, he had “pressed the pause button” on a plan to impose a new tax on millionaires.

“Maybe people are starting to realize,” Mr. Pennacchio said, “you’ve got to tiptoe when it comes to raising taxes, because it can do more harm than good.”

Still, lawmakers from both parties said it would be hard to cut taxes enough to offset the impact of the new tax law. For one thing, states like New Jersey and New York have high costs of living and high housing costs, not just high tax rates. Even if their tax rates were the same, far more homeowners in New Jersey than in Alabama would hit the $10,000 cap.

But perhaps more significant, cutting taxes would also mean cutting funding for schools, subway systems, anti-poverty programs and other services that residents in those states have come to expect.

Posted in Economics, New Jersey Real Estate, Politics, Property Taxes | 120 Comments

Predictions 2018!

This is becoming a tradition around here, so here we go again! You know how this works, break out the crystal balls and prognosticate.

Ground Rules

Predictions provided should either be for June 30th, 2018 or December 31st, 2018, please specify.

Provide justification for your forecast, where applicable (unless you are just making it up, if so, state that).

You may provide any caveats and/or assumptions that your forecast is based on.

You need not provide a forecast for all categories below.

Where applicable, forecasts are judged against the surveys/reports listed.

Real Estate
National
Existing Home Sales – NAR
Existing Home Price – S&P Case Shiller HPI
Existing Home Price – Other
National New Home Sales – NAHB
Median New Home Price – NAHB

New Jersey
Existing Home Sales – NAR/NJAR
Existing Home Price – S&P Case Shiller HPI
Existing Home Price – Other

Commodities
Energy (Oil, NatGas)
Metals (Gold, Silver, Copper)

Equities
United States
International Developed Markets
Emerging Markets

Mortgage Financing
30-Year Fixed – Freddie Mac PMMS
15-Year Fixed – Freddie Mac PMMS

Foreclosures
Delinquency Rate
Foreclosure Rate

Cybercurrencies
Date of crash
Total % decline during crash
Suicides as result of the crash

Macroeconomic
10y Treasury
Fed Funds Rate
National Unemployment Rate
New Jersey Unemployment Rate

Oddball
Anything else you’d like to make a prediction about.

Posted in General | 141 Comments

Stick it to Trump by paying early?

From the Star Ledger:

Christie orders N.J. towns to accept 2018 property tax prepayments

New Jerseyans rushing to their town halls this week in hopes of immediately paying next year’s property tax bills before the new federal tax law kicks in Monday just got a last-minute boost from Gov. Chris Christie.

But the IRS may be limiting how big of a boost they’ll get.

Christie issued an executive order Wednesday requiring that all municipalities in New Jersey permit homeowners to prepay 2018 property taxes, as long as the payments are postmarked by the end of the year, which is Sunday.

That will allow homeowners to deduct the payments on their 2017 federal tax returns.

The move is designed to help taxpayers temporarily minimize the impact of the federal law signed last week by President Donald Trump, which will limit the amount in state and local taxes that homeowners can deduct from their federal income taxes to $10,000 beginning Jan. 1.

Many municipalities — from Jersey City to Hoboken to Evesham — had already been accepting at least partial 2018 prepayments from worried residents.

But Christie said not every town in the state was following suit. His order instructs the director of the state Division of Local Government to mandate that all of New Jersey’s 565 municipalities do so.

“The action I took today will ensure that local governments are flexible and accommodating of their local property taxpayers as we transition to the new federal tax code for 2018,” Christie said in a statement. “This executive order requires local officials to dedicate the resources and staffing to serve New Jerseyans who are planning in this way for their families and their futures.”

There’s a snag, though. The Internal Revenue Service said Wednesday that 2018 prepayments are deductible only if you’ve already received a bill from your local government and paid it by Sunday. That could add confusion for those hurrying to meet the deadline.

Experts say New Jersey’s tax bills have been sent out only for the first and second quarters of 2018. That may mean homeowners are allowed to deduct prepaid taxes only for the first half of next year but not the latter half.

Posted in New Jersey Real Estate, Politics, Property Taxes | 85 Comments

Will NJ home prices fall?

From NJTV:

Tax reform throws NJ real estate market into period of uncertainty

The president gathered a crowd outside the White House to celebrate the new tax plan last week. Republicans cheered the new order, but across New Jersey homeowners and prospective home buyers were pulling out their calculators and calling their realtors because the cap on state and local tax deductions, now $10,000, will mean a tax increase for many homeowners, and that will have an impact on the housing market.

“Essentially, their taxes just went up,” said realtor Robin Pierce. “Because if the max is $10,000 that you’re paying with pre-tax dollars, now, if you’re paying $14,000, in order to pay that additional $4,000, you have to make maybe $5,000 or a little bit more.”

And if you pay $14,000 in real estate taxes, you’re not even in the top five New Jersey towns for taxes. Take a look. If you live in Tavistock paying $31,000, you’ve just lost $21,000.

What impact will that have on property values? No one can say exactly, yet, because real estate markets are affected by more than real estate taxes. But an analysis by Moody’s Analytics paints a dark picture. You’ll notice that New Jersey has seven of the top 10 counties in the U.S. when it comes to losers in home prices across the country. Essex County tops the list with a 10.5 percent hit.

Essex County is where Larry Stanley sells real estate. He admits it’s still too early to tell what the impact will be, but he says the effects may be marginal.

“First of all, all real estate is local. Everything that happens is on a local level — what happened in this area last week, last month, last year,” he said. “We have to look at it and say, we’re going to sell houses the same way we did before. This might cut out a couple of people who weren’t going to enter a certain community. In Essex County, the rail towns will always be hot. If there’s a train station in your town, it’s a hot market.”

Yeah, when you could write off your full $23,000 real estate tax. But now, even with what realtors call a low-inventory market, or more buyers than sellers, the tax plan has thrown the market into a period of uncertainty.

“I was at a client’s house, and he lives in Haworth, and he doesn’t even know if purchasing a property now would be the right thing with this new tax bill. Maybe he should just continue to rent,” said Pierce. “It gives me a lot of concern. Now that could be good for investors and landlords.”

Who can pass on tax increases to tenants. But if you’re a one-family homeowner thinking that you maybe want to upgrade to something a little bigger or fancier, you may want to think again.

Posted in Economics, New Jersey Real Estate, Politics, Property Taxes | 170 Comments

Up up and away

From CNBC:

US home prices surged 6.2% from a year ago

U.S. home prices climbed a robust 6.2 percent from a year ago, amid strong demand from would-be buyers and a shrinking supply of properties for sale.

Standard & Poor’s said Tuesday that its S&P CoreLogic Case-Shiller national home price index stood in October a solid 6 percent above its previous 2006 peak. Prices are rising at more than double the pace of wage growth, creating some affordability pressures that have been offset by relatively low mortgage rates. Metro areas with booming job markets and the steepest home price gains could see more residents staying as renters.

“Since home prices are rising faster than wages, salaries, and inflation, some areas could see potential home buyers compelled to look at renting,” said David M. Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices.

Posted in Economics, Housing Recovery, National Real Estate | 15 Comments

Uh, no. Sorry.

From the Morning Call:

Will tax cuts spur another New Jersey surge into the Lehigh Valley’s housing market?

As the 2008 housing crisis eased, Easton Realtor Clay Mitman saw New Jersey residents looking to relocate to the Lehigh Valley become an ever-increasing segment of his clientele, up to about 50 percent today.

He’s likely to meet many more, if a fresh analysis of the recently signed federal tax cut by Moody’s Analytics proves correct.

The report, issued last week, found that provisions in the law will cut into the value of single-family homes — and nowhere will the pain be felt more deeply than in high-tax New Jersey, home to seven of the 10 hardest-hit counties nationally under the bill.

Federal write-offs for property taxes and mortgage interest are being capped or curbed, making home ownership even more costly in the Garden State, eroding the value of those properties.

As a result the Lehigh Valley could see more New Jersey homeowners crossing the Delaware River for lower state and local taxes in eastern Pennsylvania.

Analysts stop short of using the term “surge,” but do think more home buyers from the Garden State will be looking at the Valley.

If those buyers decide they can add a tolerable amount of time to their commutes, the Lehigh Valley “becomes a pretty attractive alternative,” said Moody’s Analytics senior economist Adam Kamins.

Interstate 78 points west as it runs through four of New Jersey’s hardest-hit counties in the Moody’s analysis: Essex, Union, Somerset and Hunterdon.

The monthly mortgage payments New Jersey homeowners have made over the years, transferred over to the Lehigh Valley, could make mortgage payments in the future much more bearable, Mitman said. “People with $100,000 or $200,000 in equity from New Jersey have a lot more buying power,” he said.

The last big wave of New Jersey residents into the Lehigh Valley, according to Sean LaSalle, with Berkshire Hathaway HomeServices Fox & Roach Realtors and licensed in both states, came during a 2003-07 housing boom. Cheaper property taxes in Pennsylvania and lower gasoline prices, lessening the cost of a longer commute, boosted home sales here.

“Then it really slowed off when we went into the housing recession,” said LaSalle, who said he splits his time equally between both states. “It picked up, but it’s not at the numbers it was back then.”

Posted in New Development, New Jersey Real Estate | 44 Comments

Everyone hates affordable housing

From the Jersey Journal:

Court win for developer of micro units opposed by neighbors

The four-year fight over a micro-unit building slated for Downtown Jersey City is finally over, with the New Jersey Supreme Court this month declining to hear an appeal by a neighborhood group opposed to the plan.

The court’s decision allows developer Rushman-Dillon to move forward with the 87-unit, five-story building, slated for a lot at Bright and Varick streets in the city’s Van Vorst Park neighborhood. Neighbors opposed the plan but a Hudson County Superior Court judge in 2014 ordered automatic approval — meaning the developer can move ahead with construction without approval from the city Planning Board — because the city failed to OK the project during a time period prescribed by state law.

Rushman-Dillon’s lawyer, Donna Jennings, called the court’s decision not to weigh in “a significant victory” not only for her clients but for other developers who face “untoward delay tactics” from municipalities.

“These delay tactics — employed simply to frustrate or forestall an applicant — are the very evil which the automatic approval provision was specifically designed to overcome,” Jennings said. “Unfortunately, there is nothing ‘automatic’ about the provision as the plaintiff-developer has now lost four years on an application that is fully conforming with the controlling redevelopment plan.”

Neighbors have multiple problems with the project, saying it would aggravate parking problems in the neighborhood and attract rowdy residents.

Posted in Demographics, New Development, New Jersey Real Estate, Unrest | 98 Comments

Existing home sales hit 11 year high

From HousingWire:

Existing home sales surge past decade high

Existing home sales increased for the third straight month to their highest point in more than a decade, according to the latest report from the National Association of Realtors.

Total existing home sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, increased 5.6% from last month to 5.81 million sales in November, up from an upwardly revised 5.5 million sales in October. This represents an increase of 3.8% from last year and their strongest pace since December 2006.

“Faster economic growth in recent quarters, the booming stock market and continuous job gains are fueling substantial demand for buying a home as 2017 comes to an end,” NAR Chief Economist Lawrence Yun said.

An expert described the growing homebuyer demand as “unquenchable.”

“Strong home buying fundamentals such as low mortgage rates and robust job growth continue to drive unquenchable demand,” Trulia Senior Economist Cheryl Young said. “For the second month in a row in over 12 years, the share of inventory sold exceeded its pre-recession peak.”

“As evidenced by a subdued level of first-time buyers and increased share of cash buyers, move-up buyers with considerable down payments and those with cash made up a bulk of the sales activity last month,” Yun said. “The odds of closing on a home are much better at the upper end of the market, where inventory conditions continue to be markedly better.”

However, one expert pointed out that this surge could be revised down in the coming months.

“November marked the third month in a row in which sales strongly beat expectations, showing strength despite an early Thanksgiving that might have otherwise delayed some closings and ushered in the start of the typically slower holiday season,” Zillow Senior Economist Aaron Terrazas said. “Much of the last month’s surge looks to have been driven by a big spike in sales of condos and co-ops, which may be revised down in coming months.”

Median home prices also increased, rising 5.8% from $234,400 in November 2016 to $248,000 in November this year. This marks the 69th straight month of annual increases.

Posted in Demographics, Economics, Housing Recovery, National Real Estate | 102 Comments

Give NJ even more money?

From NJBIZ:

New Jerseyans need to prepay real estate, local taxes before year’s end, say accountants

New tax reform laws could spur New Jerseyans – retirees in particular – to sell their homes and move into rental spaces, according to several local accountants.

That’s because a sweeping overhaul of the tax code currently being ironed out by House and Senate Republicans in the U.S. Congress would cap the deduction for property taxes at $10,000 and preserve the mortgage interest deduction only for existing mortgages and new purchases with mortgages of $500,000 or less.

That would be bad news for state residents, who already pay some of the highest property taxes in the country, and could exacerbate the population flight out of New Jersey. It could also prompt residents – particularly retired people who no longer have children in the state’s school system – to sell their homes in favor of rental properties.

Stuart Berger, a partner at Clifton-based Sax LLP and head of the firm’s real estate practice, said capping the deduction on property taxes may have a minimal effect on residents in other parts of the country, but will negatively impact New Jerseyans because of high property taxes and home ownership costs.

“I am concerned that if that real estate tax cap goes higher, it is going to further accelerate the moves out of New Jersey,” Berger told NJBIZ. “It might push some of the seniors who have lived in a community for years to sell their homes and move into a new rental property from that standpoint.”

Berger also said the new cap could discourage young people from seeking to purchase their first homes in the state.

“The flight to home ownership could be reduced,” he said. “In the past the young people who were stretching themselves out to buy a home always considered that they got a tax write off on mortgage interest. This could be a factor in whether they will consider home ownership.”

Jim Lawrence, a partner and CPA at Traphagen Financial Group in Oradell, agreed that residents should pay state and local taxes before the end of the year in order to get the current deductions, but said his firm is recommending to clients that they pay their estimated state taxes for the first quarter of 2018.

By doing so, residents would get a voucher for the first quarter before the new tax law kicks in, thereby allowing them to get a deduction on those taxes next year under 2017 tax laws.

“So the 2018 voucher is a new concept,” said Lawrence. “So the worst-case scenario is that no legislation goes through, but you’d still getting that deduction for first quarter of 2018. I don’t think there’s anything lost by doing it. We’re talking about $2,000 to $4,000 [in tax returns] that they might not ever see again,” he said.

Posted in New Jersey Real Estate, Politics, Property Taxes | 169 Comments

Hey Murphy – want to stick it to Trump?

From Bloomberg:

These Are the Tricks States May Use to Get Around the SALT Deduction

Exploiting tax loopholes is a sport associated with rich people and their fancy accountants. State governments may have to start getting fancy, too.

Republican Senate and House negotiators in Washington agreed last week on a $10,000 cap on state and local tax deductions, or SALT. In high-tax states, that’s bad news. Personal taxes are poised to rise for 13 percent of New Yorkers and 11 percent of California and New Jersey residents, according to an analysis by left-leaning Institute on Taxation and Economic Policy, conducted after the bill’s final details were announced.

Financial planners and law professors to the rescue. It’s possible, they say, to concoct workarounds, like replacing income tax with payroll tax, and turning state tax into charitable donations. Far-fetched? Perhaps. But tax experts are already formulating ways to stop the feds from grabbing more take-home pay from Californians, New Yorkers and New Jerseyans while folks across America buy boats with the money they save.

“There are many hundreds of billions of dollars on the table over the next decade,” said David Kamin, a New York University School of Law professor. “There’s a lot of incentive for states to shift into forms of taxation that remain deductible.”

One tactic: Allow residents to make charitable gifts to the state instead of paying income tax.

That would involve legislators encouraging residents to donate to, say, New Jersey (insert quip here), instead of paying income taxes. The self-interested philanthropists who took up the state on the offer would receive a state income-tax credit for the full amount of their gift, which would qualify for a federal deduction.

Wealthy taxpayers already use a similar ploy in 18 states that offer at least partial tax credits in return for donations to nonprofits that grant tuition vouchers to private and religious schools. It especially appeals to affluent filers who pay the alternative minimum tax, which doesn’t allow them to claim deductions for state and local levies.

The charitable-gift gambit isn’t the only potential loophole. States could quit relying on income tax, paid by individuals, and switch to payroll taxes, levied on employers, according to a Dec. 7 report, “The Games People Play,” by a group of tax experts that includes Kamin and Shanske.

If employers pay the payroll tax and reduce employees’ salaries by the same amount, workers wouldn’t have to deduct anything and would wind up being paid the same amount. That would allow states to collect the same revenue while preserving individuals’ deductions on federal returns.

The tactics amount to a zero-sum game between state and federal governments. To the degree that statehouses succeed in clawing back part or all of their SALT deductions, federal tax collectors would miss out on revenue they’re depending on to fund the corporate tax cuts at the center of the overhaul plan.

“The question is,’’ Davis said, “how far are the states going to push the envelope?”

Posted in National Real Estate, New Jersey Real Estate, Politics, Property Taxes | 185 Comments