What is the proposed GOP tax reform impact on New Jersey homeowners?
Anybody in New Jersey’s middle class whose personal strategy for saving is to buy a home is watching that strategy be run over by a truck – a truck being driven by Congress. If the Senate has its way, the new tax code will prevent homeowners from deducting their property taxes from their federal taxes, a financial disaster for the average homeowner.
The House proposal that passed Thursday – a clear example of the lesser of two evils still being evil – will allow property tax deductions but only up to $10,000. A $10,000 cap may benefit some homeowners, but when your state has the highest property taxes in the nation, there will be many more hurt than helped.
The vast majority of the consumer wealth in the New Jersey middle class is tied-up in their house. People buy a home believing that they’ll have equity in it to sell and retire, or even to borrow against to pay their kids’ college tuition. A home is the biggest investment 99 percent of people in New Jersey make in their lives. If the Senate bill passes, not only will homeowners’ equity disappear overnight, but there will be a significant jump in the number of home foreclosures in the area.
To stay afloat of the property, people will be forced to either dip into their savings or to take money that was allocated for some other purpose, such as retirement funds, children’s college tuition, medical coverage, etc. Or they will have to give up their home. Many will opt for foreclosure believing that the other choices are unacceptable.
The House tax bill isn’t much better an option when you consider the number of New Jersey homeowners who pay more than $10,000 per year in property taxes. According to the New Jersey Department of Community Affairs, in 2016 there were more than 140 New Jersey municipalities whose Average Residential Property Taxes was more than $10,000. More than 30 towns had an average property tax of $15,000 or higher.
Why does Congress assume these homeowners have a money tree in their backyards? Assuming a homeowner is financially solvent because their property is worth $15,000 in taxes is ridiculous, and the housing market may suffer the consequences. Many homeowners will feel cheated. They will look at this tax deduction limit and say, “This is not the deal I signed on for when I bought this home. I never would have bought it had I known this was going to happen. I am not paying this. Let them come and take my home.”
And when foreclosures again dominate the housing market and new home construction falls even further because homeowners are unable to carry the cost of owning a new home, then Congress will respond as it always does by blaming everyone but themselves.
New Jersey homeowners would be wise to swarm the offices and phone lines of their senators and demand that these tax reform proposals be rejected. Wealthier Americans who hold diversified wealth will not be adversely affected by these proposed changes, but middle-class Americans like those in New Jersey have limited personal wealth and most of it is invested in their homes. They cannot absorb the proposed changes. Prepare for a disaster.