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Can you explain this? How is it that at the Federal level two people, one in N.J. and one in Iowa have different tax liabilities, with the one in N.J. forking more than the one in Iowa? I have heard this argument before, but it doesn't quite make sense to me. Usually when the topic is brought up, the explanation as to how this comes about to be is not offered.
It isn't to say that a person in NJ making the same as someone in Iowa pays more federal taxes. NJ residents make ~15%-20% more than the national average. The nature of the progressive tax system is that the higher income earners will pay more. The problem is the cost of living in NJ is 15%-30% higher than the national average. So you basically have a scenario where even though the average NJ resident makes more than the average US resident, the NJ resident has less buying power (effectively less disposable income). That is before we take federal taxes into account. The primary driver behind NJ's high cost of living is housing, which is driven by population density and economic activity.
The SALT deduction partially harmonized federal taxation with local cost of living and "real" income. Even with that in place, NJ residents were fairly badly penalized because of the structure of the tax code.
It isn't to say that a person in NJ making the same as someone in Iowa pays more federal taxes. NJ residents make ~15%-20% more than the national average. The nature of the progressive tax system is that the higher income earners will pay more. The problem is the cost of living in NJ is 15%-30% higher than the national average. So you basically have a scenario where even though the average NJ resident makes more than the average US resident, the NJ resident has less buying power (effectively less disposable income). That is before we take federal taxes into account. The primary driver behind NJ's high cost of living is housing, which is driven by population density and economic activity.
The SALT deduction partially harmonized federal taxation with local cost of living and "real" income. Even with that in place, NJ residents were fairly badly penalized because of the structure of the tax code.
Thanks for explaining it. Every time I have heard this topic, it is usually from politicians on national TV. With that said, now I can see how this statement is a little disingenuous at best. Why? Because the tax implications regardless of where you live are the same. The difference, as you very well explained comes as of result of our decision to live in New Jersey; and not because the Federal Government decided to tax us more. So, we pay more to the Federal Government (not really) because we don't hold our local State authorities accountable for their inefficiencies, mismanagement, and corruption.
The SALT deduction pretty much highlights the same problem on a different angle which is why have we allowed our property taxes to be the highest in the country? So the way i see it is as follow. The Federal Government is giving us a big **** you; so that we can look at the real culprits sitting in Trenton.
Thanks for explaining it. Every time I have heard this topic, it is usually from politicians on national TV. With that said, now I can see how this statement is a little disingenuous at best. Why? Because the tax implications regardless of where you live are the same. The difference, as you very well explained comes as of result of our decision to live in New Jersey; and not because the Federal Government decided to tax us more. So, we pay more to the Federal Government (not really) because we don't hold our local State authorities accountable for their inefficiencies, mismanagement, and corruption.
The SALT deduction pretty much highlights the same problem on a different angle which is why have we allowed our property taxes to be the highest in the country? So the way i see it is as follow. The Federal Government is giving us a big **** you; so that we can look at the real culprits sitting in Trenton.
You are still missing it. It is always going to cost more to deliver services in NJ (and higher COLA) because we are the densest state in the country. But it isn't just about services. You could literally drop property and income taxes to $0 tomorrow and NJ will still be as expensive as it was, because property values will grow to fit the new disposable income. That is the free market. Let's make the assumption that NJ residents do like the services we get more than not getting any at all. You can't expect local and state government employees to cost the same in NJ as they cost in Iowa - it doesn't stand up to logic. Also, I don't see why you're dinging Trenton for property taxes - that is done at the local level. The best the NJ state government can do is distribute state income tax dollars to municipalities for property tax relief.
So try again from the perspective that NJ's high cost of living isn't based on the decisions of state and local politicians, but on the density of people and jobs in the region. Why shouldn't federal taxes harmonize?
You are still missing it. It is always going to cost more to deliver services in NJ (and higher COLA) because we are the densest state in the country. But it isn't just about services. You could literally drop property and income taxes to $0 tomorrow and NJ will still be as expensive as it was, because property values will grow to fit the new disposable income. That is the free market. Let's make the assumption that NJ residents do like the services we get more than not getting any at all. You can't expect local and state government employees to cost the same in NJ as they cost in Iowa - it doesn't stand up to logic. Also, I don't see why you're dinging Trenton for property taxes - that is done at the local level. The best the NJ state government can do is distribute state income tax dollars to municipalities for property tax relief.
So try again from the perspective that NJ's high cost of living isn't based on the decisions of state and local politicians, but on the density of people and jobs in the region. Why shouldn't federal taxes harmonize?
I understand that living in New Jersey entails a higher cost. However, this financial predicament is not based only in cost of living as you mentioned. A big chunk of the financial mess of our state, stems from the mismanagement from our local authorities (gas tax rings the bell?). I disagree about dropping property taxes making it the same. There is a close relationship between your cost of living and every expense that comes out of your pocket book. Additionally, I do not expect government employees to earn the same as their counter parts in Wyoming, but we shouldn't let them retire with a good pension, and then get another job, for the same amount which is a popular in New Jersey. The Trenton comment was just to illustrate government as a whole.....so of course it is at the local level, but there are lots of other indirect taxes that get approved in Trenton so it is endemic.
As far as what's best for NJ, my opinion is to be away from the party lines and get more engaged in local politics. Distributing tax dollars to municipalities will open the gates of hell and soon we will be in a third world state of affairs. We are too far deep into this mess for an easy solution.
So it appears that SALT is back in subject to a $10,000 limit. And it appears that a Senator from Maine (U.S. Sen. Susan Collins) is the only one who held out for this and wouldn't give up on it. While our senators rolled over and did nothing.
It took a bloody liberal Senator from Maine to save our bacon while the useless turds who represent us failed to take a stand.
Of course this has to survive conference, but since it's also in the House version, there has to be what is considered some hope.
Home equity lines are still out, though. No deductibility in either version I believe. The only silver lining there is that most HEQ loans carry low interest rates at the present time.
And also neither the proposed mortgage interest deduction nor the SALT deduction are indexed. Which means they are on a de facto phase out over time.
I understand that living in New Jersey entails a higher cost. However, this financial predicament is not based only in cost of living as you mentioned. A big chunk of the financial mess of our state, stems from the mismanagement from our local authorities (gas tax rings the bell?). I disagree about dropping property taxes making it the same. There is a close relationship between your cost of living and every expense that comes out of your pocket book. Additionally, I do not expect government employees to earn the same as their counter parts in Wyoming, but we shouldn't let them retire with a good pension, and then get another job, for the same amount which is a popular in New Jersey. The Trenton comment was just to illustrate government as a whole.....so of course it is at the local level, but there are lots of other indirect taxes that get approved in Trenton so it is endemic.
As far as what's best for NJ, my opinion is to be away from the party lines and get more engaged in local politics. Distributing tax dollars to municipalities will open the gates of hell and soon we will be in a third world state of affairs. We are too far deep into this mess for an easy solution.
Anyway.....nice chatting and thanks for engaging.
I'm not a talking head; happy to chat about this stuff any time! Appreciate the civil discussion. I agree we can be more efficient. NJEA is probably the biggest state/local issue. But double dipping pensioners isn't the reason NJ is expensive. The pension obligation on the state level is crippling. However, feds making us whole for one year pays for the pension and the rail tunnel in one swoop. The real issue is progressive federal taxation siphons money out of high cost of living states to prop up low cost of living states, which leaves the high cost of living areas less to fund more expensive local services. NJ is hit doubly with the loss of $1+ billion in annual tax revenue to NYS.
The real issue to look at is what percentage of a State's budget is from federal aid.
I remember looking and 1 year Pennsylvania's budget was 50% funded from federal aid while NJ's was only 15%. Of course you would need higher State taxes in that instance
You don’t think NJ having so many sanctuary cities and illegals doesn’t kick up out NJ state and property taxes?
Who pays for them when they deliver a baby or take up a seat at the local public school? Majority do not pay taxes and are paid under the table. No complaining from the democrats on that. They just voted for Murphy who will increase the illegal population
You don’t think NJ having so many sanctuary cities and illegals doesn’t kick up out NJ state and property taxes?
Who pays for them when they deliver a baby or take up a seat at the local public school? Majority do not pay taxes and are paid under the table. No complaining from the democrats on that. They just voted for Murphy who will increase the illegal population
There is no need for guesswork. NJ State and every municipal budget is available for review on the web. Go ahead and take a look.
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