U.S. Rep. Leonard Lance (R-NJ) led a bipartisan call on Monday for the Trump administration to preserve federal tax deductions for state and local real estate taxes, personal property taxes and sales taxes as part of any tax reform plan.
The letter to Treasury Secretary Steve Mnuchin was in response to a draft plan to reform the tax code released by the administration earlier this year that proposed striking federal deductions for state and local taxes, which are used by about a third of taxpayers.
“New Jersey residents pay the highest property taxes in the United States,” the letter states. “Eliminating this deduction would increase taxes on the average New Jersey taxpayer by $3,500 per year. We hope you will reconsider this dramatic increase to the tax burden borne to families and homeowners in select high-cost states.”
Lance has argued that residents of New Jersey pay a hefty portion of federal taxes but don’t see as much in-state federal funding as taxpayers in other states, and eliminating the federal deduction would advance the disparity.
“The deduction primarily benefits middle- and lower-income earners: nearly 85 percent of those claiming the state and local deduction in New Jersey have household incomes below $200,000 per year,” Lance said. “Furthermore, states like New Jersey already disproportionately provide revenue to the federal government while receiving less than they give in return. According to the Tax Foundation, New Jersey ranked 41st in states by percentage of revenue coming from the federal government.”
Itemizing deductions for state and local taxes resulted in $7.7 billion for taxpayers in New York in 2014 alone, the letter states, which amounts to $6,600 per affected taxpayer. And high-tax states like California and Illinois are similarly affected.
“In California and Illinois, the state and local tax deduction also represents a sizable portion of taxpayers’ income, accounting for approximately 8 percent of the average itemizer’s adjusted gross income, and 6 percent, respectively,” the letter states. “In California, nearly 5.9 million residents claimed the deduction, with nearly 84 percent of those earning less than $200,000 in annual household income. In Illinois, the numbers were similar: 86 percent of the nearly 2 million Illinois residents claiming the deduction are households making less than $200,000 per year.”
The letter also noted that the National Governors Association, United States Conference of Mayors and the National Conference of State Legislatures have opposed the elimination of state and local tax deductions.