The GOP controlled House of Representatives recently passed a budget resolution, which is regarded as one of the first steps toward passing a proposed overhaul of the U.S. tax code. The Republicans have not released a complete version of their plan, which seems to be a fairly transparent ploy to dismiss critics by saying that the plan is incomplete and will be modified later. Additionally, since there are winners and losers in any reform of the tax code, floating a partial plan lets republicans test the waters to see what kind of pushback they get and from where. As the plan stands now, the federal income tax deduction for State and Local Tax (SALT) paid is to be eliminated. This will potentially increase the tax liability for middle to upper middle class families, especially in blue states where State and Local Taxes are relatively high. A recent analysis by NJ Spotlight computed estimates of the how much in SALT deductions New Jersey residents stand to lose by zip code, using data compiled from individual tax returns by the IRS.
Among the Yea votes for the budget resolution was Congressman Rodney Frelinghuysen of New Jersey's 11th district, whose constituents, and in particular his voter base, take a lot of state and local tax deductions. The plan is incomplete and elimination of SALT deductions is only one among many changes of the tax code. Therefore estimating the change in someones tax liability is very complex, and critics such as ourselves can't claim that elimination of someones SALT deductions means their taxes will go up. However, being a grown adult and an experienced legislator, if Congressman Frelinghuysen believes that a GOP tax plan that includes elimination of SALT deductions will be a net benefit to his constituents, then it is up to him to make his case. We have a feeling that a many of his constituents, and even many of his lifelong supporters will want these details about the changes in their tax liability clarified as soon as possible.
The NJ Spotlight article used a measure of the average SALT deduction in a zip code as follows: they divided the total amount of state and local income tax deductions claimed in a zip code by the number of returns which claimed such a deduction. They did the same for real estate tax and sales tax, and then summed those three averages. We'll use two metrics that are a bit simpler, the fraction of individual returns claiming a state and local income tax deduction and the fraction of individual returns claiming a real estate tax deduction. There are important differences in the two approaches. Our simplified approach only gives an idea of how many tax return will be impacted the elimination of the deductions, but ignores the magnitude of the impact. Any change to the tax code will have a disproportionate impact on the population, since many people do not claim such deductions at all, and among those that do, much of the deductions taken may be concentrated in a small subpopulation. The NJ Spotlight method gives an indication of this by taking the average deduction over the number of returns which took a deduction. We'll go with the our two metrics because they are easier to interpret, even though they give a less detailed picture of impact of SALT deductions in a zip code.
We'd also like to compare how often SALT deductions are taken compared to Congressman Frelinghuysen's support in the last election, but there's a problem. Election results are available at the municipality level (or county subdivision as the census calls them) while the tax data are by zip code. There is not a one to one correspondence between these two geographies, for instance voting results are available for Mendham Borough and Mendham Township, but the two combined have a single zip code. Similarly, the voting results from Montville contains two postal codes for Montiville and Towaco. Municipalities and zip codes are therefore pooled to get the best possible match between the two datasets. Without further delay, here is a map of NJ11 showing the fraction of tax returns claiming a state and local income tax deduction relative to the statewide average of 35.2% (meaning positive numbers indicate the zip code uses the deduction more frequently than the state average)
Most of the district uses state and local income tax deductions at higher rates than the rest of the state. The usage of these deductions is particularly high in the Mendham - Harding - Chatham Township area in the southern part of the district. This includes Congressman Freylinghuysen's hometown, and where he and his family are probably best known. Below is a similar figure, but for real estate tax deductions. The pattern is very similar to state and local income taxes.
So how does this relate to the voting results from the last election? There is a general trend that places that use SALT deductions at a higher rate also turned out more for Congressman Frelinghuysen. Note, that vote share used here is the fraction of registered voters, not the two party vote share. This helps account for trends in abstention. There are a few outliers which cast a lot of uncertainty in the trend, for example there is high SALT deduction usage but low Frelinghuysen support in Montclair. Although, since the SALT deductions are already claimed at high rates in NJ11 relative the rest of the state, it is reasonble that the within district trend is fairly mild.
There probably aren't many people around the country who would shed a tear over the possibility of a tax increase for people whose incomes are well above the national and state medians, but it is important to note what GOP tax reform is about. Taxes on these folks will not go toward building schools, fixing roads, or funding social programs, but rather would finiance incomprehensibly lavish cuts for handful of households in the nation.
Check out the source code and data on github to see how the material for this post was generated