House vs. Senate tax bill: Which benefits New Jersey?

Dec. 07--Retired in Leisure Village West in Manchester and getting by on a decidedly middle-class paycheck, James Burke has studied the GOP's competing tax bills and concluded that he could wind up paying $1,000 more.

How so? The House wants to increase the standard deduction so much that it wouldn't make sense for him to itemize. But with it, he would lose his deduction for medical expenses.

"In my case, I think I'm going to pay more taxes," Burke, 74, said.

Burke is among the New Jersey households carefully watching as the House and Senate negotiate a final version of tax reform. Its outcome will have an impact on housing, education and health care in the state.

1. Mortgage interest

House: Property owners can deduct interest on debt up to $500,000 only on a principal residence.

Senate: Can deduct interest on debt up to $1 million on a principal and one other residence.

Who should care? New Jersey's affluent homeowners and consumers who own vacation homes at the Shore.

Quote: "It could help accelerate the flight of higher income residents to other states," said John McWeeney, president and chief executive officer of New Jersey Bankers Association. "We think it could have a negative effect on property values if you can't take some of these deductions."

2. Schools

House: Families can save up to $10,000 a year to spend on private schools in 529 plans that come with tax advantages. Currently, money from the plans can be used only for higher education. Be sure to watch the video above to see what's on the House's agenda.

Senate: Same.

Who should care? Families with children in private schools could get financial help with tuition. But it could come at the expense of public schools, which are already facing a dilemma: What will happen to their revenue if the property tax deduction is capped?

Quote: "There could be some communities that are in a bind because they have higher-than-average education spending," said Michael Hayes, a professor of public policy and administration at Rutgers University in Camden.

3. College students

House: Repeals deduction that allows some taxpayers to deduct either $2,500 or the amount of interest they pay on student loans.

Senate: Leaves the deduction unchanged.

Who should care? Some 68 percent of recent college graduates in New Jersey have student debt, eighth most nationwide, according to The Institute for College Access & Success, a research group.

Quote: "I would always be taking this refund and throwing it at the student debt so it goes away as quickly as possible," said Jordan Celkupa, a certified financial planner with Robert J. Oberst Sr. & Associates in Red Bank. "I regret the loss of such an opportunity."

4. Obamacare

House: Leaves the mandate in the Affordable Care Act that requires nearly all Americans to have health insurance.

Senate: Repeals the mandate.

Who should care? Consumers who don't receive health insurance through Medicare, Medicaid or their employer. They would not have to pay a penalty for not having insurance, but premiums would increase for individuals who are covered by as much as 10 percent.

Quote: "It's better for people to have insurance than not," said Sean Hopkins, a vice president at the New Jersey Hospital Association, a trade group. "People with insurance have better access to primary care, preventative care, and early intervention all of which drive better outcomes."

5. Medical expenses

House: Repeals the tax break that allows consumers to deduct out-of-pocket medical expenses -- anything from health insurance premiums to prescription drugs -- that amount to more than 10 percent of their adjusted gross income.

Senate: Allows consumers to deduct out-of-pocket medical expenses of more than 7.5 percent of their adjusted gross income in 2017 and 2018 before going back to current law in 2019.

Who should care? People with big medical bills.

Quote: "It's OK for me," James Burke said. "I live by myself. But If I had a wife, two or three kids and a house to support, and I was 40 something years old, it would be very tight and I would need the tax deductions."

Why is New Jersey at risk?

Read this analysis of why New Jersey is particularly threatened by these two tax bills.

Michael L. Diamond; @mdiamondapp; 732-643-4038; mdiamond@gannettnj.com

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