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The Ramifications of Trump’s Tax Plan on NY and NJ Residents: What You Need to Know

January 2019

You’ve heard about the Republican Tax Bill orchestrated under President Trump, but do you know how it will impact you and your family? This article aims to decompose the Bill to better understand its implications and to prepare those in the New York and New Jersey area for potential economic shift.

Trump’s Tax Bill most heavily influences high-taxed, high-cost states; New York and New Jersey notoriously fit this profile and as a result are 2 states that will feel the shock more than others. While high-earning corporations may see the tax cut in a positive light, high-earning individuals may react differently. This bill will eliminate the deduction for state and local income taxes (“SALT”) and would cap the deduction for property taxes at $10,000. In most any other housing market in the country this would not be impactful, but in the greater New York area wherein many households of surrounding wealthy suburbs itemize their deductions, many will see an instant tax increase. With the loss of local tax deductions, families here will end up paying considerable amounts more each year.

Additionally, the bill aims straight for the heart of the greater New York/New Jersey housing market. As income tax rises due to the lack of deductions and $10k SALT cap, homeowners will struggle with the devaluation of their real property. Unlike the 2% real estate tax in Florida, New Yorkers pay hefty real estate taxes when purchasing a home. On top of that, state and local tax are 11% of income taxes; when homeowners are no longer able to take those deductions, the housing market may begin to take a hit. Homes in these heavily impacted areas will drop in demand, thus dropping in value simultaneously. Even more so, some New York and New Jersey suburbs could be even more susceptible because property-tax rates are higher there and prices are still recovering from the bursting of the housing bubble.

On a lighter note, some immediate influence of the bill could prove beneficial to the state of New York: the corporate tax cuts are a huge win for the financial sector and – as this trickles down the ladder – higher returns for investors and higher earners equates to increased consumption leading to increased earnings for retailers which in turn produces higher city and state sales-tax revenue. This is a positive outcome theoretically, however if the state fails to attract high-income individuals (who expect to live in expensive homes) because of the bill’s impact on the housing market, the result would mean a devastating economic shift. The most harmful elements would take years to have an effect. It is projected the bill would add more than $1 trillion to the deficit over a decade, according to Congress’s official scorekeeper. Under a 2010 law, the increased deficit would force automatic spending cuts to Medicare and other programs – New York and other cities depend on these programs to aid and support their poorest residents.

Ultimately, New York and New Jersey residents must ramp up their financial planning in preparation for decreased deductions and property tax caps. Trump’s Tax Bill will create obstacles for you and your family, but we are New Yorkers and New Jerseyans – we persevere.

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