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Pascrell and Menendez: Fighting back with the SALT Act

New legislation seeks renewal of state, local tax deductions

Washington, February 24, 2019
Bob Menendez, D-North Bergen, is New Jersey’s senior U.S. Senator and a senior member of the tax-writing Senate Finance Committee. Bill Pascrell, Jr., D-Paterson, is a congressman representing New Jersey’s Ninth District and a senior member of the tax-writing House Ways and Means Committee.

Originally printed in the Bergen Record.

That audible groan you hear is the latest person who just realized they got hosed on their taxes. That gut punch when reality sets in that you did not get a refund, but a bill from the IRS.

You should be angry – furious. Our used car salesman of a President and his Republican cronies in Congress sold you a bill of goods. They promised a windfall for the middle class when they jammed through their December 2017 tax overhaul that gave huge breaks to the super rich and big corporations.

Now, only weeks into the first tax filing season under the Trump tax law, the hard truth is setting in for millions of middle-class Americans across New Jersey and the nation: they owe more – in some cases, thousands more – in taxes. The IRS reported it is already seeing an average 8 and one-half percent drop in tax refunds over last year.

Only this President, the self-proclaimed “King of Debt,” could manage to blow up the deficit by $2.3 trillion while still raising taxes on millions of families.

A main culprit for the tax sticker shock in New Jersey and other high cost-of-living states? The $10,000 cap the Trump tax law imposed on your ability to write-off your local property and state income taxes. With average property taxes alone exceeding $10,000 in 20 of 21 counties, the IRS is literally taxing New Jerseyans on their taxes, plain and simple.

There might not be a song about it in the hit musical, but the ability to deduct your property taxes from your federal income taxes has its roots all the way back in Alexander Hamilton’s writings in the Federalist Papers. Addressing concerns about the power of the federal government, Hamilton wrote that the U.S. Constitution would give states “an independent and uncontrollable authority to raise their own revenues for the supply of their own wants” and that any “attempt on the part of the national government to abridge them in the exercise of it would be a violent assumption of power” and unconstitutional.

President Lincoln later affirmed this principle when he allowed payers of the newly created federal income tax to deduct their property taxes. Lincoln’s act of tax fairness would eventually become the State and Local Tax (SALT) deduction when the federal income tax was constitutionally enshrined in 1913.

This commonsense write-off recognizes that America isn’t composed of 50 separate entities, but is one nation, and investments in one state benefit the whole. The SALT deduction is a bedrock of federalism that represents a tacit agreement that the federal government should encourage state-derived investments and self-sufficiency. This covenant, which afforded states the independence to chart their own path and act, in the words of Supreme Court Justice Louis Brandeis, as “laboratories of democracy,” lasted well over a century until Donald Trump and Republicans in Congress eliminated it in a spectacular example of political partisanship and retribution.

While gutting the SALT deduction impacts the entire country, it undeniably hurts New Jersey the most. In 2016, 1.8 million or around 40% of New Jersey taxpayers deducted their property and state income taxes, averaging $18,000 per deduction. And more than 80% of those who deducted earned less than $200,000. In a high-cost state like ours, that’s the middle class we’re talking about.

To remedy this tax injustice, we have introduced bipartisan legislation that fully restores the ability of folks to deduct property and state income taxes on their federal returns, thus putting an end to the double taxation the Trump tax law imposed on New Jersey taxpayers.

It’s called the Stop the Attack on Local Taxpayers, or SALT Act, and it’s about reducing your property tax burden and restoring the tax fairness both Hamilton and Lincoln championed. Generally speaking, the more you pay in property and state taxes, the more our bill will reduce your federal tax bill.

And our legislation doesn’t just help homeowners. Whether you realize it or not, every New Jerseyan benefits from the SALT deduction. It’s what enables states to make critical investments in public education, infrastructure, public safety and economic opportunity that we all rely on. It’s why our public education system and per capita income both consistently rank at the top in the nation and New Jersey was recognized by Save the Children as the number one state in America to raise a child.

Critics will argue that repealing the SALT cap will be a boon for very wealthy taxpayers. While it’s true that wealthier taxpayers in New Jersey claim larger deductions because they tend to pay more in state and local taxes, our bill targets tax relief to the middle class by simultaneously repealing the tax windfall that was gifted last year to the top 1%.

In doing so, our legislation reverses the politically motivated Trump attack on so-called “blue states” and creates regional equity amongst taxpayers, while giving states the freedom to set their own fiscal policies, invest in its people, and improve quality of life so that New Jersey can stay a “blue chip” state.

Nearly all of the New Jersey Congressional delegation – Sen. Cory Booker and Reps. Chris Smith, Frank Pallone, Donald Payne, Jr., Donald Norcross, Bonnie Watson Coleman, Albio Sires, Tom Malinowski and Andy Kim – have already signed on to our bipartisan approach. A total of 14 senators, representing states from Maryland to California, have cosponsored our bill. Even Trump recently acknowledged the SALT cap has been “severe” on taxpayers, although candidly, his involvement in seeking a remedy to our onerous tax burden is like an arsonist applying to join the fire department.   

Some 231 years have passed since an immigrant from the British West Indies named Alexander Hamilton, writing under the pseudonym Publius, laid the foundation for local control of fiscal policy without federal interference.

We’re not going to sugar coat it: the fight to restore this fundamental principle will be neither easy nor quick. Nevertheless, like Mr. Hamilton, we’re not giving up our shot.

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