Credit: (AP Photo/Alex Brandon)

Many New Jersey residents stand to gain long-sought relief from a tight cap on the federal tax write-off for state and local taxes under the latest domestic policy proposals that are up for consideration in Washington, D.C.

Last-minute negotiations in the Democratic-controlled U.S. House have yielded legislation that would, among other policy changes, raise the current cap on what is known as the SALT deduction from $10,000 to $80,000.

In the U.S. Senate, a proposal backed by New Jersey Democrat Bob Menendez also targets the SALT deduction, which had been unlimited until 2017, when President Donald Trump and a then-Republican Congress established the $10,000 cap.

The proposal backed by Menendez would remove any cap on the SALT deduction for households making up to roughly $400,000 annually.

While it’s unclear what will happen in the end as intraparty disagreements continue to shape ongoing policy talks, the drafting of these proposals and others in recent weeks suggests delivering on the long-discussed goal of providing SALT relief has now been cemented as a key priority for the majority party.

Republicans made notable legislative gains in New Jersey last week during an election that also saw Gov. Phil Murphy nearly upset by GOP challenger Jack Ciattarelli, something that could add urgency for Democrats to come through on the SALT issue as attention shifts to next year’s mid-term elections, which will see House Democrats seeking to defend gains made in 2018 when a so-called blue wave helped their party wrestle control back from the GOP.

SALT cap hits many NJ residents

And while some see it as only consequential for the very wealthy, the SALT cap has also hit many people who don’t consider themselves rich in places like New Jersey where relatively high median incomes and housing costs can often translate into hefty state and local tax bills.

“I mean it’s so important that I made clear I wouldn’t vote for the bill if we didn’t find a way to address the SALT issue,” said U.S. Rep. Tom Malinowski (D-7th) as he discussed the domestic-policy legislation during a recent interview with NJ Spotlight News.

“I’m confident we’re going to address it,” Malinowski said.

To be sure, many New Jersey residents have benefited from the broader tax changes enacted by Republicans in 2017, including an expansion of what’s known as the standard deduction.

But federal tax data suggests many other residents have been hit with tax hikes due to the SALT cap; roughly 40% of the state’s filers used the deduction before it was capped, with the average write-off topping $10,000 in 20 of New Jersey’s 21 counties. Moreover, in some counties, the average SALT deduction easily topped $20,000 before the cap was enacted, according to the tax data.

Addressing cost concerns

Under the House bill, the new SALT limit would be raised to $80,000 for nearly a decade. Lifting the limit to that level, but not taking it away altogether, appears to provide tax relief to a wide majority of filers while also addressing concerns among some Democrats of enacting a domestic-policy agenda that is too costly.

‘It’s important to note that at this level the overwhelming majority of New Jersey taxpayers — close to 99% — would be able to fully deduct their state and local taxes.’

Malinowski, in the interview, called the outcome of the House negotiations over the SALT issue “great for the folks I represent.”

“It’s important to note that at this level the overwhelming majority of New Jersey taxpayers — close to 99% — would be able to fully deduct their state and local taxes,” he said.

But also coming amid the broader policy discussions about providing SALT relief have been progressives’ concerns that the bulk of the tax benefits could go to the wealthiest residents even if those in lower tax brackets also stand to gain some relief. Under that thinking, if the cap is to be changed, they would prefer an individual’s or household’s overall wealth to be factored into the analysis.

The plan put forward by both Menendez and Vermont Sen. Bernie Sanders appears to address those concerns more than the House legislation. Under their proposal, the $10,000 cap would remain in place for those with annual incomes over roughly $400,000. But it would be lifted for those below that threshold.

‘We think this is a better way’

“We think this is a better way and we would hope to be able to work it out,” Menendez said during a recent news conference held with Sanders.

From a broader policy perspective, Menendez has suggested lifting the cap for everyone but the very rich would also help preserve New Jersey’s status as a wealth-producing state where residents as a whole send the federal government more tax revenue annually than they receive back from federal programs.

“In order to continue to be a blue-chip state, a maker state, the state and local property-tax deduction is critical so that those investments can be made that continue to generate the economic engine that states like New Jersey have been,” Menendez said during the news conference.

It remains to be seen which proposal ends up making it into a final piece of what’s being called “build back better” legislation that can win approval in both the House and the Senate and also get the signature of President Joe Biden.

But U.S. Rep. Bill Pascrell (D-9th), who has been a vocal advocate for SALT relief, emphasized last week that his party has “never lost sight” of the goal of helping middle-class taxpayers who were impacted by the cap after it was enacted by Republicans.

“Republicans raised taxes on the middle-class and we are lowering them,” Pascrell said. “From day one this issue has been about lifting up our middle-class and reinstating centuries-old tax policy.”