WASHINGTON - Rep. Tom Malinowski, D-7th testified in Congress before the House Ways and Means Committee earlier this week, demanding the State and Local Tax deductions be fully restored.
Signed into law on Dec. 22, 2017, the new tax reform limits the itemized deduction for state and local taxes to $10,000. Previously taxpayers were entitled to deduct real estate taxes, personal property taxes, and the higher of their sales tax paid or their state and local income taxes paid, with no limit.
The $10,000 cap lowers the amount of itemized deductions that can be claimed by taxpayers. The limit on the deduction has had a significant impact on taxpayers in states like New Jersey with higher income tax rates, and on those who pay a significant amount in state and local taxes or have large real estate taxes.
Following are Malinowski's remarks:
“I’m here today on behalf of the 7th District of New Jersey to urge reinstating the full State and Local Tax Deduction.
I urge you to do it first of all as a matter of principle. It has long been accepted in America that we do not tax the same income twice. This was stated in the Federalist Papers in the 1780s.
When Congress enacted the first federal income tax during the Civil War, it included the first exemption for state and local taxes. One of your distant predecessors on this committee, Congressman Morrell of Vermont, said at the time: “The orbit of the United States and the States must be different and not conflicting. Otherwise, we might crush some of the most loyal States in the Union.”
More immediately, I urge you to restore the SALT deduction because my constituents in New Jersey, and many states like it, are getting crushed. In my district, 53% of taxpayers took the SALT deduction when it was last available. According to our Society of Certified Public Accountants in New Jersey, more than 63% of their individual and family clients who make under $200,000 a year are seeing a higher federal tax bill under the new cap.
Over the past few months I have held a roundtable on SALT in every county in my district. In Westfield, New Jersey, where the average property tax is over $15,000, I met an 82-year-old man who owed $4,000 more in federal taxes this year. For someone on a fixed income, that is devastating.
Some experts say that the loss of SALT deductions hurts mostly higher income people in states that can afford to take the hit. That argument ignores several inconvenient facts.
First, the states hardest hit are already disadvantaged when it comes to our tax and spending decisions. New Jersey gets 74 cents back from the federal government for every dollar we send to Washington. The average American gets $1.10 back, because of the federal deficit. Think about that. From the standpoint of taxpayers in New Jersey, the federal government is running a massive surplus, yet we will still be on the hook for paying down the debt that mostly benefits other states. The only consolation we used to get was the ability to deduct our state and local taxes, and now that has been taken away.
The second inconvenient fact is that in states like mine, it is middle income home owners who are suffering most from the loss of SALT. Higher income people got plenty of other benefits from the 2017 tax bill to compensate. And where did the extra money that these middle class taxpayers owe go? What are we getting for this? In part, we’re getting an effective corporate tax rate in America that’s fallen to around 12 percent – that’s what we’re enabling -- with corporations spending most of their windfall not on capital investment, not on creating jobs, but on buying back their shares on Wall Street. Amazon, Chevron, GM paid no taxes last year, while middle class people in my district paid thousands of dollars more to make up for the loss of revenue.
The final inconvenient fact takes us back to the reason why we long prohibited double taxation. Think about what state and local taxes support. In New Jersey, they mostly support education for our kids. We make these contributions to ensure that every child in our community has an equal chance to succeed. And now those contributions are being taxed. Everybody gets hurt by that, not just the taxpayers.
And on top of that, because the SALT cap means fewer people will itemize deductions, there will be less of an incentive to give to charity. We have not begun to see the impact that will have on social services in our communities, but it will be profound.
Earlier this year, I worked with Congressman Pascrell and Senator Menendez to introduce bi-partisan, bi-cameral legislation, the Stop Attacking Local Taxpayers Act of 2019.
The legislation will fully remove the SALT cap and offset costs by restoring the top marginal rate to where it was prior to the 2017 tax bill.
Mr. Chairman, my constituents have been coming to me asking when we will be holding a vote to fix this injustice.
I implore the committee to bring the SALT Act to the floor to fully restore our SALT deduction, and provide relief to taxpayers in my district, and across the country.
Thank you so much.”