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House GOP Tax Plan Is Little Help To High-Tax States Like New Jersey

Nov 9, 2017
Originally published on November 9, 2017 11:27 am

Northern New Jersey is one of the highest-taxed places in the country. So a tax cut sounds great to a lot of people there.

But the House Republican plan being debated this week may actually raise the taxes of many people in the region.

"I was hoping they would give us more things to deduct on our tax returns, honestly," says Kassie Smith, a resident of Westfield, New Jersey. Smith is a bookkeeper and her husband is an auto mechanic. They pay nearly $12,000 a year in property taxes.

Living near New York City pushes incomes higher, even for blue collar workers, and puts them in a higher tax bracket. Being able to deduct local income and property taxes, evens things out. But the current House Republican plan currently eliminates most of those reductions, meaning no tax savings.

In fact, the Smiths worry their tax bill could go up.

"I'm not going to tell my boss, 'Oh, my taxes went up $600 this year, you need to give me $600 more in pay," Smith says.

An analysis by the Tax Policy Center, a research group, suggests that while most Americans will see a tax cut, almost 10 percent of middle-class workers will see an immediate tax increase of more than $1,000. But the Smiths and others in high-cost states like New Jersey, Connecticut, Massachusetts or Virginia could see higher increases.

Some think that might be a good thing.

"Other states would say we have too much government here in New Jersey," says Walter Leurs, board member of the New Jersey Taxpayers Association, which has been pushing to lower property taxes in New Jersey.

Some who support the current House GOP plan argue that losing these deductions might just finally push local tax rates down. Also, others wonder why taxpayers in Wichita should subsidize public pensions in New Jersey.

"Someone from say Oklahoma or Texas or Kansas would say, 'Look your property taxes are much higher,'" Leurs says. "You have a higher level of service, so you're kind of getting what you pay for over there."

This is exactly what worries left-leaning groups fearing that without these deductions, voters will revolt against local taxes, depriving local governments of resources.

"It would be one thing if they were taking away this deduction and ramping up investments that were going to come to state and local governments, but they're taking away this deduction and cutting taxes, by and large, for the wealthiest Americans and for large corporations," says Jon Whiten, vice president of the New Jersey Policy Perspective.

Under his analysis of the House Republican plan, the country's top 5 percent would net more than 60 percent of the tax cuts.

However, another research group, the Tax Foundation, says that cutting the corporate tax rate will eventually increase GDP growth, boost stock prices, and create almost a million new jobs.

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DAVID GREENE, HOST:

Senate Republicans are expected to unveil their version of a tax overhaul today. Like the House bill that's already moving along, the Senate version is being touted as a way to keep more money in Americans' pockets. But for millions of middle-income earners in high-cost states, the changes could eliminate big tax deductions. From member station WSHU, Charles Lane reports.

CHARLES LANE, BYLINE: Westfield, N.J., is one of the highest-taxed places in the country, so a tax cut sounded great to Kassie Smith, but the House GOP plan instead hit with a thud.

KASSIE SMITH: Well, I was hoping that they would give us more things to deduct on our tax returns honestly because that would make us be able to stay here.

LANE: Smith is a bookkeeper, and her husband is an auto mechanic. Because of the high cost of living in northern New Jersey, They've often talked about moving. But right now, they're doing what they can to keep school taxes down by organizing this garage sale to raise money for the high school football team.

SMITH: So they can get new helmets or new cleats or have breakfasts.

LANE: The Smiths pay nearly $12,000 a year in property taxes. Because they live close to New York City, there's a lot of density and need for bridges and trains and police. Living near such an expensive big city also pushes incomes higher, even for blue collar workers, and puts them in a higher tax bracket. Being able to deduct local income and property taxes even things out, but reducing those deductions, as the House plan currently does, means no tax savings. In fact, the Smiths worry that their tax bill could go up.

SMITH: I'm not going to tell my boss, oh, my taxes went up $600 this year, you need to give me $600 more in pay.

LANE: Six-hundred dollars is probably on the low side. An analysis by the Tax Policy Center, a research group, suggests that while most Americans will see a tax cut, almost 10 percent of middle-class workers will see an immediate increase of more than $1,000. But the Smiths and others in high-cost states like New Jersey, Connecticut, Massachusetts or Virginia could see higher increases. Libertarian Walter Luers says maybe that's a good thing in the long run.

WALTER LUERS: Other states would say we have too much government here in New Jersey.

LANE: Luers is with the New Jersey Taxpayers Association and has been pushing to lower property taxes in New Jersey. Some argue that losing these deductions just might finally push local tax rates down. Also, why should taxpayers in Wichita subsidize public pensions in New Jersey?

LUERS: Someone from, say, Oklahoma or Texas or Kansas will say, well, look, your property taxes are much higher. And you have a higher level of service, so you're kind of getting what you pay for over there.

LANE: This is exactly what worries left-leaning groups. Jon Whiten runs the New Jersey policy perspective and fears that without these deductions, voters will revolt against local taxes, depriving local governments of resources.

JON WHITEN: It would be one thing if they were taking away this deduction and wrapping up investments that were going to come to state and local governments, but they're taking away this deduction and cutting taxes for the wealthiest Americans and for large corporations.

LANE: Under his analysis of the House Republican plan, the country's top 5 percent would net more than 60 percent of the tax cuts. However, another research group, the Tax Foundation, says that cutting the corporate tax rate will eventually increase GDP growth and boost stock prices and create almost a million new jobs. For NPR News, I'm Charles Lane.

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