Gottheimer rails against Trump tax reform, but H&R Block says tax liability fell in NJ

Rep. Josh Gottheimer has problems with President Donald Trump's tax reform. 

The Bergen County Democrat stopped at H&R Block in Teaneck on the deadline day for filing federal income taxes to highlight deficiencies in the Tax Cuts and Jobs Act of 2017 — which he says have brought disastrous consequences for his constituents. 

What he learned there, however, was at odds with his protests about the 2017 tax overhaul’s impact on New Jersey residents, whose deductions for state and local tax payments this year were capped at $10,000 on their federal filing forms.

A study by H&R Block indicated that among the more than 10 million H&R Block customers who filed by March 31, the average tax liability nationwide was down 25 percent while refunds were up 1 percent.

Block’s New Jersey customers showed the largest average decline nationwide in tax liability: 29 percent.

Fueling the decline in tax liability were reductions in tax rates and a doubling of the standard deduction. 

The IRS filing deadline came as the states of New Jersey and New York continue their push to blunt the impact of Trump's tax reform. 

The H&R Block data was gleaned from more than 10 million filings it made by March 31. According to federal IRS statistics, based on 103 million filings made by April 5, refunds were down 1 percent, with 78 million filings receiving an average refund of $2,833.

Gottheimer, D-Wyckoff, said the H&R Block statistics don’t reflect the experience he has observed in his district, which comprises parts of Bergen, Passaic, Sussex and Warren counties.

“This study is lagging, doesn't reflect this year's complete tax returns, is based only on their customers, and certainly isn't reflective of what is happening in northern New Jersey," he said. 

Gottheimer, in his second term, is among several members of the House from the Northeast seeking to repeal the cap on state and local tax (SALT) deductions, which was a key part of the 2017 tax legislation that lowered corporate and personal tax rates. The cap of $10,000 on SALT deductions was felt in the Northeast, including in Bergen and Passaic counties, where the average property tax bill exceeded the cap in 2018, according to Gottheimer.

The average Bergen County filer had almost $25,000 in state and local taxes in 2018, Gottheimer said.

Earlier this year, Gottheimer filed a bill to repeal the SALT deduction cap, which would be paid for by closing loopholes on capital gains and inheritance taxes.

“There’s proof positive how SALT has stuck it to New Jersey,” he said.

Nathan Rigney, lead tax research analyst with H&R Block’s Tax Institute, said the substantial decline in tax liability for New Jersey residents is tied, in part, to the tax bill’s changes in eligibility for the Alternative Minimum Tax (AMT), which in the past has snared families with an income between $200,000 and $600,000.

Those who paid the AMT in the past could not deduct their state and local taxes. So this year, when new guidelines made them ineligible for the AMT, they didn’t feel the impact in the loss of SALT deductions, Rigney said. There was also a one-time credit for those who paid AMT in the past that could skew the 2019 numbers.

However, Rigney warned that families without children younger than 17 who earned close to $200,000 but did not pay the AMT in the past are the taxpayers who would be hit hardest by the SALT cap.

“If they own homes and pay high property taxes, that group is likely to pay more,” he said. “And it’s true that a lot of taxpayers paid more in tax liability, year to year.”

Fair Lawn CPA Norman M. Fleischer acknowledged that the tax liability could have gone down for those who hired H&R Block to help prepare their federal tax filings, and may rent instead of owning a home.

But he said some high-income New Jersey residents who employ CPAs for their tax filings saw their tax liability go up. 

"I could get the same study with CPAs whose clientele are in a different strata and I’ll tell you that their tax liability is more," he said. 

New Jersey is among several states that have sued the IRS over the SALT cap. The state is also fighting a proposed IRS regulation that would blunt the attempt by several Northeast states, including New York, to set up charitable funds in which taxpayers could make donations and then obtain tax credits to cover most of their local property tax liability.

In 2018, both New York and New Jersey passed legislation that would allow municipalities to set up such funds, and some municipalities moved forward. But in November 2018, the IRS proposed regulations that blunted the impact of those programs, allowing a tax credit of just 15 percent, instead of up to 90 percent.

New York state Assemblywoman Amy Paulin, who represents Westchester County, was in Washington, D.C., in early April at the U.S. Office of Information and Regulatory Affairs, which has received thousands of comments on the proposed IRS rules. That includes protests from private and parochial schools in the South, where such tax-credit programs have been in place for decades.

Paulin traveled there with attorneys from the firm Baker McKenzie, which is representing two Westchester County communities — the village of Scarsdale and the town of Rye — in a case that will challenge the IRS rules, once they become final.

"The proposed rule has had a chilling effect on the charitable funds," Paulin said. "We're waiting for the final ruling so we can make our case." 

GOTTHEIMER: Proposes restoration of full SALT deductions

REPEAL: NJ Democrats want to repeal SALT cap

ANALYSIS: SALT deduction bill would favor New Jersey's wealthiest

Editor's Note: David McKay Wilson is a journalist and columnist for the USA TODAY NETWORK Northeast. His Tax Watch column has been a fixture in lohud.com and The Journal News of Rockland and Westchester counties in New York for nearly a decade. This is his first appearance in NorthJersey.com and The Record. Follow Tax Watch columnist David McKay Wilson on Facebook or on Twitter @davidmckay415.