Usually, Tom Bracken said, he would do cartwheels over a plan to cut corporate taxes.
Instead, this week the president of the New Jersey Chamber of Commerce blasted the Republican tax plan now nearing the finish line, saying it would harm property values in the Garden State and discourage quality workers from moving there.
“It’s going to make it more expensive to live here,” Bracken said on a media call.
He and other critics, including the New Jersey Business and Industry Association — which also said the plan “will negatively impact property values” — worry about the plan’s ripple effects on housing due to proposed limitations on valuable deductions for mortgage interest and state and local taxes. Those changes, critics argue, could also squeeze local governments that rely on local taxes to fund schools and services.
“New Jersey’s going to feel this pretty significantly,” said Dave Jones, a tax and real estate expert at Temple’s Fox School of Business.
Kevin Gillen, an economist at the Lindy Institute at Drexel University, said homeowners in South Jersey would be more affected than those in Pennsylvania. The Jersey Shore, in particular, could take a hit because the property-tax deduction could be eliminated for second homes, and the Shore has some of the most expensive houses in the region.
“I don’t think it will affect homeownership so much as it will affect home prices,” he said. “You’re not willing to pay as much for a home as you would otherwise.”
Democrats and Realtors said alarm bells should still sound in suburbs outside Philadelphia, where home prices and property taxes can also be high.
“If you have a home in a middle- or upper-middle-class area [around] Philadelphia right now, under this GOP tax plan, you’re at risk of seeing a drop in your home value,” said Rep. Brendan Boyle (D., Pa.), whose district is split between Northeast Philadelphia and suburban Montgomery County.
Jamie Ridge, president of the Suburban Realtors Alliance, which represents Realtors from Montgomery, Chester, Bucks, and Delaware Counties, said his members “are extremely concerned.”
“Most of the time when you’re trying to determine what a family can afford, the mortgage interest deduction and state and local property taxes and state and local income taxes all play into that,” Ridge said.
In New Jersey, which has the highest property taxes in the nation, 14 of 15 members of the House and Senate oppose the tax plan, with Rep. Tom MacArthur, a South Jersey Republican, the exception. Every Republican from the Southeast Pennsylvania suburbs supports it. They argue that tax cuts will spur economic growth and save money for the vast majority of their constituents — giving people more cash to buy homes.
Rep. Ryan Costello, a Republican from Chester County, said the overall economic climate weighs more heavily on whether people buy homes.
“If we have a tax code that is creating a competitive job market with wage growth, and you have companies wanting to be here in Southeast Pennsylvania, folks are going to want to live here, that’s going to drive house price, that’s going to drive housing demand,” he said.
Though the House and Senate proposals are still being reconciled and could be altered, the frameworks are similar: They would cut rates, roughly double the standard deduction, and increase child tax credits. They partially offset those moves by limiting or ending many deductions and axing personal exemptions.
Both versions would cap the popular deduction for state and local taxes — used by more than 4 in 10 filers in the Philadelphia area — at $10,000 of property taxes. There would be no deduction for income taxes, though there are talks to change that in the final version.
The House bill would also limit deductions for mortgage interest to the first $500,000 of any new loans, another factor in places with high home prices.
Mark Zandi, the Chester County-based chief economist for Moody’s Analytics, predicted that the tax bill could also lead to higher interest rates, which would affect home loans. Combine all those factors, and owning a home may become less advantageous, denting prices, he said.
A Moody’s study estimated that homes in Gloucester County would be worth 9.4 percent less by 2019 than without the tax bill — the eighth-biggest impact in the country. Camden and Burlington Counties aren’t far behind. In Delaware County, home values would be 6.6 percent below current projections, the study predicted.
(Republicans from the area noted that Zandi has donated to several Democratic candidates. Zandi also gave to GOP presidential candidate John McCain and advised McCain in 2008.)
Effect of the GOP Tax Plan on Home Values
Moody’s Analytics projected that home prices in South Jersey and the Philadelphia area would be hurt by the Republican tax plan. These are projections for the change in home values in 2019 compared with what would happen under current law, by county.
The changes could also make it harder for local governments to raise taxes to pay for services and schools, because they will know that their residents will no longer be able to deduct some of the costs, said Jon Whiten, a spokesman for the liberal-leaning New Jersey Policy Perspective. New Jersey schools are largely funded with property taxes — which many people deduct when paying federal taxes.
“People are trying to make a living and working hard,” said Robert Burton, the borough manager in Medford Lakes, Burlington County. “You’re effectively hurting those folks because you’re trying to support your schools.”
Valerie Arkoosh, chairwoman of the Montgomery County Board of Commissioners, said limiting the state and local deduction “could lead to pressure from our constituents to eliminate or lower taxes.”
To fiscal conservatives, that’s the point. They say the deductions encourage higher local taxes, since residents get relief from some of the cost.
“It helps state and local government bureaucracies grow,” antitax crusader Grover Norquist wrote in a column for NBC News.
Republicans also say getting rid of these deductions, sometimes called SALT, will pay for broader tax benefits, noting that the vast majority of taxpayers will use the larger standard deduction, not the breaks for mortgage interest or local taxes.
They argue that the state and local provisions help people in high-tax states at the expense of those elsewhere. On the Senate floor, Sen. Pat Toomey (R., Pa.) questioned how “it could be fair” that a Dauphin County taxpayer would pay more in taxes “to subsidize somebody who gets to live in a multimillion-dollar condo” in Manhattan.
New Jerseyans like Sen. Bob Menendez, a Democrat, respond that taxpayers in his state pay far more to the federal government than they get back in aid. And he produced a letter from three Dauphin County officials — two Republicans and a Democrat — warning “that the loss of the SALT deduction will harm middle-class homeowners and overall property values.”