WEST LONG BRANCH – A property tax reform task force of the New Jersey League of Municipalities has come out with a multiyear proposal to cut property taxes by 35 percent by the fourth year by increasing the state income tax rates on all income.
The proposal calls for a maximum $7,000 property tax cut on primary residences over four years. The average family would save $2,700, the task force projects. Tenants would receive a $200 rebate, the League said Tuesday.
The main driver of property taxes is the local school systems, which NJLM has called inequitable.
“School funding using the property tax is regressive and should be replaced by a more progressive method (such as) the ability to pay based upon annual income,” the report said.
The report said that property taxes are higher than income, sales and corporate taxes combined, “so any reform should shift part of the property tax burden to income taxes, sales taxes or both.” The task force also recommended merging the existing direct property tax relief programs – Homestead Rebates and Senior Freeze – into one program.
But the bulk of the property tax cut would be made possible by increasing income tax rates. The proposal calls for paying 2.245 percent on all income between $50,000 and $70,000. As it’s currently structured, a portion of one’s income is taxed at one rate and another portion at a different rate. Generally, the more you make, the higher the portion. In taxation parlance, this is known as “graduated.”
The task force proposes the following income tax rates be applied for the entire income, and not just portions. The rates are: 8.5 percent income tax rate for those earning $500,000 or more; 6 percent for income between $150,000 and $500,000; 5 percent tax rate between $80,000 and $150,000. All these rates would be lowered from the current 8.97 percent, 6.37 percent and 5.525 percent rates, respectively.
The task force projects the shift would generate an additional $3.9 billion in income tax revenue that could go toward decreasing property taxes. By fiscal year 2017, the shift would generate an additional $4.7 billion to $5.1 billion.
Between the higher income tax rates and absorption of the current direct property tax relief programs, property taxes would be cut by nearly $6 billion over the four-year period that it’s phased in, the League says.