Public policy in New Jersey and elsewhere is being influenced by poorly informed politicians
by Frank Pallotta
Frank Pallotta, Mahwah resident, is a former Wall Street executive and owner of a specialty finance company Steel Curtain Capital LLC. He also works with American Corporate Partners (ACP), a nonprofit group that helps military veterans transfer back into the workforce.
What passes for basic economic knowledge in American politics today is shocking. There is an alarming and increasing rate of economic ignorance (and deceit) among elected officials, activists and many in the media and it is negatively impacting public policy.
The Amazon HQ2 debacle is just one example of the failure of many decision-makers to grasp how our economy — or any economy — works and how corporations make business decisions. U.S. Rep. Alexandria Ocasio Cortez (D-NY) has become an easy target for her inability to grasp simple economic theory. But it is, nevertheless, alarming when a member of Congress is so unacquainted with common economic policy that she thinks a $3 billion, 25-year state tax incentive to Amazon means there was actually a pot of $3 billion sitting in an account somewhere that can be tapped for subways or schools. The fact that some of her constituents believe her is even more frightening.
The same astonishing lack of tax policy comprehension can also be found on the New Jersey side of the Hudson River in abundance. U.S. Rep. Josh Gottheimer (D-5) greeted federal tax reform last year by trying to make his constituents believe that he could engineer an end-run around the state and local tax (SALT) deduction limits by declaring property taxes as a charitable donation, and, therefore, deductible on federal income tax. Any accountant worthy of a diploma will tell you that in order to receive a charitable deduction, you cannot receive anything of value in exchange for a contribution. For example, if you buy a $75 gift certificate in a charity auction for $100 you are only permitted by law to declare a charitable deduction of $25. Therefore, for mandatory property taxes to be written off as a voluntary “charitable deduction,” local officials would have to declare property owners get little or no real value in exchange for our property taxes. I haven’t heard any mayor say that and I don’t expect to hear that anytime soon.
Gov. Phil Murphy then jumped at Gottheimer’s scam as part of a grand deception that used state funds to file a ridiculous lawsuit against the Internal Revenue Service to have taxes morph into charity. Murphy, a former Wall Street banker should have known better, and perhaps he did, but he chose to carry out the charade because it took the focus off New Jersey’s high property taxes. Gottheimer, on the other hand, failed to stand up for his constituents (of which I am one) by refusing to admit the obvious: New Jersey’s property taxes are too high, and the state must find a way to cut taxes rather than pursue an imaginary tax loophole.
‘…misleading and politically motivated’ reporting
This year’s reporting on 2018 federal tax returns has been both misleading and politically motivated. Progressives and the media breathlessly report that individual tax refunds this year are lower than last year. While that is true, it is entirely irrelevant. The changes in the new tax code that were implemented last year allowed for the IRS to adjust payroll withholding deductions so most people received more money each pay period instead of receiving a huge lump sum in early 2019. The larger tax-refund checks of the past did not indicate that you had lower taxes; they simply meant that workers were getting back from the federal government their own money that they loaned to the IRS interest-free. I would much rather receive 100 extra dollars per month than let the government hold in to it for a year, only to return $1,200 back to me.
Progressives and the media don’t mention that tax reform doubled the personal tax exemption to $24,000 per couple (which largely offsets the SALT change), increased the child tax credit (up to $2,000 per child) and lowered tax rates for everyone by 3 percent. Also omitted in the tax-reform kerfuffle is that more than 60 percent of New Jersey taxpayers don’t itemize deductions on their federal income-tax forms, so they are unaffected by the new federal SALT limits.
Nevertheless, politicians such as Gov. Murphy continue to deride tax reform as part of his ongoing efforts to discredit President Trump, whose tax reform plan is often portrayed as a sop to the rich. Not so. Few reports mention that the “rich” are still subject to the alternative minimum tax, which guarantees that they pay “their fair share.” Fewer still mention that the top 20 percent of households will pay 87 percent of the 2018 taxes — up from 84 percent in 2017. The bottom 60 percent of households will also pay no net federal income tax for 2018.
In his recent state budget address, Gov. Murphy couldn’t resist taking potshots at the SALT deduction. His gambit is a clumsy way to shift attention from his failure to do anything to lower property taxes. The best he can muster is that property-tax increases in 2018 slowed. But a small increase is still an increase which is not good when you live in a state that pays the highest proper taxes in the nation.
It will be nearly impossible to create rational and healthy state and federal economic policy when our legislators’ knowledge of simple finance is so low; and where every economic plan is filtered through the manipulative prism of rich versus poor. America desperately needs to upgrade its economic IQ if we are to maintain our prosperity.