Property Tax Relief in Sight for NJ Taxpayers?

After some arm-twisting, the state Senate today gave final legislative approval for a measure that promises most homeowners a property tax credit of up to 20 percent. The measure promises $2.2 billion in tax relief, coupled with a 4 percent limit on the amount local government taxes can rise.

The bill was sent to Gov. Jon Corzine.

"Relief is on its way to over-burdened taxpayers," Corzine said. "And we've reached a turning point in reform."

But the governor said he was not fully satisifed, pointing to bills still pending that would ban dual-office holding and regulate campaign contributions in local elections. He also said the state must find a way to reconfigure the way it pays for schools.

"We've made a good step or two," Corzine said. "There is still quite an agenda ahead of us."

Today's vote came about 13 1/2 hours after Senate President Richard Codey (D-Essex) pulled the plug on a failed effort to win 21 votes for the package late last night. He tried it again this morning, and struck gold an hour after posting the bill for a vote.

So, what does the tax relief plan actually look like?

Will it look like anything the politicians promised before November? Will you get a 20% break on your property taxes? Let's take a closer look. The text of the bill, A1 (companion to S20) is here.

The bill sets new limits on the growth of various state and local budgets, but the heart of the property tax relief that homeowners care about is this - the NJ SAVER rebate/credit statute (NJSA 54:4-8.59). The amendments would allow a rebate or credit for the tax year equal to the amount determined as a percentage of property taxes not in excess of $10,000 paid by the taxpayer. Taxpayers whose gross income is not over $100,000, they will see a credit of 20%. Those with income over $100,000 but less than $150,000 will get a 15% credit; and taxpayers with income over $150,000 but less than $250,000 will result in a 10% credit. Special rules apply for homeowners age 65 or older - they can use the standard rules, or apply specified dollar amount credits, whichever are greater.

If your property taxes are currently over $10,000, this credit/rebate will only apply to the first $10,000. Credits will be reflected annually in the August and November property tax bills beginning in 2007. Renters would see relief doubled to $150, and the plan would limit annual property tax increases to 4 percent. A taxpayer must reside in a homestead on October 1 of a tax year to be eligible for the credit.

Here's a couple of examples that will make clear exactly what kind of credit you can expect:

Example 1:
Taxpayer earns less than $100,000 per year and is under 65 years of age. Property taxes are $8,500. The credit would equal $1,700 (based on the 20% bracket) such that the property taxes actually paid would be $6,800. This taxpayer will actually get the full 20% benefit.

Example 2:
Taxpayer earns less than $100,000 per year and is under 65 years of age. Property taxes are $11,500. Since the credit is capped at the first $10,000, the taxpayer (in 20% bracket) would see the taxes reduced by $2,000 to $9,500. This is not actually a 20% reduction in property taxes, but actually 17.3% reduction in taxes.

Example 3:
Taxpayer earns $125,000, is under 65 years of age, and property taxes are $10,500. Since the taxpayer falls into the 15% bracket, the taxpayer would see the taxes reduced by $1,500 to $9,000, because the credit is limited to the first $10,000. The functional tax credit would be 14.28%.

Those taxpayers who are paying in excess of $10,000 in property taxes, which is quite possible in Bergen and Essex counties (among others) will see less in property tax relief than what is promised.

Of course, we've been here before. Gov. McGreevey attempted to get property tax reform back in 2004 along with limits on spending growth, and that ended up doing nothing to stem the growth in taxes.

If the property taxes increases are capped at 4%, how long will it be before those taxes are right back where they are now? 5 years?

This is yet another shell game because none of this deals with the structural deficiencies in addressing the state and municipal budgets. The state can say that they're cutting taxes 20%, but the localities have to make up the difference somehow, so they're going to end up raising taxes against the cap (they have fixed costs such as union contracts and pension payments etc.). The local politicians get to carp against the state politicians for tying their hands and limiting the financial aid to the municipalities. The state politicos get to slam the locals for not doing more to rein in spending. Everyone gets to see the fruits of more revenues come in because the taxes keep rising and taxpayers don't get much in the way of relief.

Note that even if property taxes aren't increased, New Jersey is already paying more in other taxes to fund this: the sales tax increase was passed to fund property tax relief. Simply put, you get one tax to pay for tax relief in other areas. Instead of fixing the state's structural budgetary problems, the Governor and legislature are shifting money around and hoping that no one notices.