WASHINGTON – There’s another hurdle awaiting President Joe Biden’s big social spending bill, and it’s coming from Democrats in New Jersey.
As the party wrangles over the size, scope, and strategy to adopt much of Biden’s economic agenda, some New Jersey Democrats are insisting it include tax relief that could help hundreds of thousands of residents of Biden. Garden State.
Senators from New Jersey and several members of the State Democratic House are pushing that any final bill include the reinstatement of the state and local tax deduction, a valuable deduction that was capped in the Bill to Republican tax of 2017.
With Democrats unable to lose even a single Senate vote and only three House votes to move their plans forward, threats of defection give New Jersey residents power over an issue they have been insisting on ever since. years. Write-off allows individuals and families to deduct state and local taxes they paid when they file their federal taxes; deductions reduce the amount of taxable income.
Residents of New Jersey, facing notoriously high property taxes, have always been one of the nation’s biggest beneficiaries. The statewide average deduction was $ 19,000 before the GOP-led tax law capped the deduction. In 2018, that figure fell to $ 9,700.
Senator Bob Menendez (D., NJ) said it would be “difficult” to support a final Democratic spending bill unless it completely repealed the $ 10,000 limit on state and local tax deductions.
“The full deduction of national and local taxes is a common sense tax policy that encourages states to invest in education, public safety, essential services and other job-creating initiatives that create economic opportunities for all. “Menendez said in a statement last week. Referring to the break by its acronym, he added: “No SALT, no deal”.
New York lawmakers, including Senate top Democrat Chuck Schumer, have also called for the reinstatement of full deduction. House Speaker Nancy Pelosi (D., Calif.) Called the cap “devastating” to taxpayers in her home state.
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But the cap is just one part of the tangled negotiations over a sprawling social spending bill that has so far focused on resistance from the senses. Joe Manchin (D., W.Va.) and Kyrsten Sinema (D., Arizona). It’s unclear whether party leaders will side with New Jersey lawmakers when the final bill arrives.
And New Jerseyans face a range of opposition. Republicans argue the deduction encourages liberal governors and mayors to raise taxes because their residents are protected from part of the final cost. Conservatives also often criticize the deduction as a subsidy for residents of states with high taxes. And proponents of the balanced budget and some progressives and Republicans also point out that the deduction is massively weighted to help the rich.
“The inconvenient truth for House Democrats is to remove or increase the cap on the SALT deduction, forcing middle and low income people to subsidize high income people who choose to live in jurisdictions high tax, ”said Sen. Pat Toomey (R., Pa.), one of the main authors of the tax bill that limited the deduction.
He argued that it would be better to reduce personal tax rates, as did this 2017 bill, paid in part by capping the SALT deduction.
Some Democrats, meanwhile, argue that the money the government would lose by reinstating the break could be better spent on other priorities of the social spending bill, which covers health care, child care. , education and other safety net concerns.
Estimates for fully reinstating the deduction range from around $ 75 billion to $ 85 billion per year. By comparison, the enhanced child tax credit extension that Democrats approved earlier this year costs about $ 110 billion a year, according to the Non-partisan Committee for a Responsible Federal Budget. This credit should largely benefit low-income people.
With so much at stake for their party in the welfare spending bill, which contains large swathes of Biden’s platform, it’s unclear how far New Jersey Democrats will push. Many of their threats to refuse their support have been made.
Senator Cory Booker told a New York radio station that the deduction “is something that I’m willing to go to the mat for.”
Four members of the House have threatened to oppose a final Democratic bill unless it offers some relief. Their four votes would be enough to block the bill.
“The point is, SALT’s restoration is restoring the middle class,” said one, Rep. Bill Pascrell, in a statement. His spokesperson said the congressman would not support the sweeping spending plan if it “does not provide significant relief from SALT.”
Yet both Liberal and Conservative analysts point out that the vast majority of the benefits of the deduction go to wealthy taxpayers. If the cap were lifted, nearly 83% of benefits would go to people in the top 5% of the income scale, according to a 2018 analysis from the liberal-leaning Tax Policy Center.
About 4% of the benefits would go to taxpayers in the bottom 80%.
Rep. Alexandria Ocasio-Cortez (D., NY) called the break a “gift for the rich.”
In New Jersey, nearly 755,000 tax filers claimed the deduction in 2018, according to the most recent IRS data available, a steep drop from before the cap was implemented, although many tax changes have been made. were able to contribute to this, including an increased standard. deduction.
In the year before the new cap took effect, about 80% of the value of deductions in New Jersey were claimed by filers earning $ 100,000 or more. Just over half were claimed by people with incomes of $ 200,000 and over.
Even though Pennsylvania is much bigger, fewer of its taxpayers claimed the deduction in 2018 (551,000 filers), deducting approximately $ 8,300 in income on average. Profits were greatest in wealthier regions, such as Chester and Montgomery counties.
Advantage supporters say it avoids “double taxation” by preventing the federal government from taxing the money people have already paid to fund their state and local governments. And they argue that income comparisons don’t take into account the high cost of living in places like New Jersey.
Democratic aides also argued that the rich aren’t the only ones benefiting: more than 500,000 New Jersey filers who claimed the deduction in 2018 earned less than $ 200,000.
“The average income in New Jersey is not the same as in Tulsa, Oklahoma, Sioux Falls, South Dakota, or Casper, Wyoming,” Pascrell said in his statement. “We all know that the costs of housing, food, child care and transportation are higher here. “
New Jersey Democrats argue that the 2017 change was for the deduction to punish blue states where people pay more taxes to fund schools, infrastructure and other public goods.
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Taxpayers in New Jersey, New York and California – states with high cost of living – have historically been the top recipients of the deduction, according to the Tax Policy Center.
Democratic aides also argued that New Jersey taxpayers already contribute far more to federal coffers than they receive in federal aid.
“These are working, middle class families who are not being treated fairly,” Menendez said. “At the end of the day, we are a donor state that funds the programs that many moocher states rely on. “
In South Jersey, where the deduction is still popular but is on average worth less than in North Jersey, Democrats support a restoration but have been less outspoken.
“SALT is incredibly important to New Jersey and I would expect it to be part of the solution,” said a statement from Rep. Donald Norcross.
Representative Andy Kim “fully supports the reinstatement of the tax deduction for hard-working families in New Jersey,” a spokesperson said.
As negotiations unfold, it’s unclear whether Democrats will resist a full repeal or agree to a partial measure. Since the cap is due to expire after 2025, a temporary repeal could help achieve most of what they want. A partial repeal that raises the cap might provide some relief, but not as much as New Jersey lawmakers want.