Because putting food on the table and gas in the tank wasn’t supposed to be this tough. Larry explains how and why inflation and taxation are twin burdens on our wallets, and how we can get back on track.
Taxation and inflation are critical issues facing the members of our 11th District community. I want to aggressively work to tackle these twin impacts on our wallets and pocketbooks.
I believe that it is critical to understand the similarities and relationship between these twin burdens as we both seek to cut taxes and curb inflation. Sure, there are obvious differences between inflation and taxation, but practically speaking they affect working families similarly. Each erodes our ability to put food on the table and gas in the tank.
As recently reported by The Wall Street Journal, inflation is now at a nearly 40 year high. While this comes as little surprise to most of us who have recently gone food shopping, it remains among the most pressing issues for residents of the 11th District.
In a meaningful sense, inflation is an invisible regressive tax putting the biggest burden on the most struggling amongst us. The independent, bipartisan Tax Foundation defines a regressive tax as one in “which the average tax burden decreases with income. Low-income taxpayers pay a disproportionate share of the tax burden, while middle- and high-income taxpayers shoulder a relatively small tax burden.” So it is clear that if we think about inflation as a tax, it should be understood to be one that is regressive.
In this policy environment, it is useful to understand inflation as if it were tax, because in recent months its re-emergence as a critical issue has been enabled by the same elected leaders in Washington who control the tax code, and hence our tax burdens. These leaders greenlighted previously unimaginable levels of spending, supported policies that reduced workforce productivity and failed to address supply chain level impacts. There is a straight line to be drawn between these policies and the sharp uptick in inflation. Put plainly, if substantially more dollars are chasing around less available goods and services prices tend to go up. And that is what we currently face. So in short, our political elite need to be held to account for the very inflation they enabled.
My campaign does not accept the Biden administration’s attempts to variously rationalize and minimize inflation’s impact. In an article entitled, “Biden’s Inflation Pitch Doesn’t Pass the Laugh Test,” Bloomberg’s Ramesh Ponnuru notes that “Biden has taken to saying that the Democrats’ “Build Back Better” legislation will reduce inflation. This spin isn’t just unconvincing. It underscores the absurdity of the Democrats’ political project.”
I agree with the author as do most honest observers. Far from mitigating against inflationary pressures, Build Back Better would have further increased inflationary pressures on our economy by further increasing the amount of money in circulation while failing to deal with the major supply chain issues we all observe and while being asleep at the wheel when it comes to the Great Resignation. For this reason, I applaud the apparent recent defeat of Build Back Better. Unfortunately, much damage has already been done. We can do better, and I pledge to fight this fight for you.
New Jerseyans have long suffered from high state and local taxes. Adding insult to injury, New Jersey’s residents, including those of us who are struggling, are essentially subsidizing the rest of the nation. Indeed, as reported by a report from graduate school alma mater, Rutger University’s Bloustein School of Planning & Public Policy, “New Jersey Gets about 75 cents on Each Dollar that It Sends to Washington.” Only three states in the union fare worse in that regard.
It is key to understand why this happens, and who is responsible. This subsidy, which most states enjoy at New Jersey’s expense, is most significantly the consequence of the policies enacted by the very House of Representative I seek to represent you in. This is because the U.S. Constitution mandates that, “[a]ll Bills for raising Revenue shall originate in the House of Representative.” So it is clear that the pieces of legislation that have caused this disparity facing New Jersey each started out as spending bills in the House of Representatives. It is therefore also clear that we should expect our representatives in that chamber to more aggressively advocate for our state. I intend to do just that.
State & Local Tax Deduction (SALT):
As I have learned with every passing day representing struggling Jersey residents in my law practice, Jerseyans, particularly our homeowners, have undeniably suffered as the consequence of a specific change in the tax code in recent years referred to as State & Local Tax Deduction or SALT. The SALT deduction refers to a provision of the tax code that allows taxpayers to deduct from their taxable income, at the level of federal taxation, certain monies spent in connection with state and local taxes. Historically, all such monies were deducted from one’s income preventing taxpayers, particularly those in high taxed states such as New Jersey, from facing double taxation. In recent years this protection against double taxation was eliminated, except for the first $10,000.00 of state and local taxes paid. As the average related deduction in the 11th District would be over $20,000.00 but for the change to the tax code, our communities are suffering from an unfair tax burden.
As reported recently in US News & World Report, New Jersey has the highest effective property tax rate in the nation. According to this report, homeowners living in a median priced home in the state face both the highest tax rate and the highest tax burden of homeowners in all 50 states, with our residents paying almost 10% more in property taxes than those living in the second highest property tax state, Illinois. So the new $10,000.00 cap on the SALT deduction is killing residents of our Congressional district and this needs to stop immediately.
Inflation & Bracket Creep:
Beyond feeling like it is itself an invisible tax which erases much of your spending power by driving up prices, inflation can directly affect your tax burden in some ways that are not obvious to many taxpayers. This is the result of what is referred to as “bracket creep.”
The Tax Foundation describes bracket creep as a phenomenon that “occurs when inflation pushes taxpayers into higher income tax brackets or reduces the value of credits, deductions, and exemptions.” The good news is that the tax code has certain built in protections against bracket creep. In fact, we can take some solace in the fact that the Internal Revenue Service (IRS) mitigates some of the potential for bracket creep as it provides as adjustment to the tax brackets thresholds on an annual basis. Indeed, on November 10, 2021, the IRS announced a related adjustment to the income tax rate schedule.
However, the story doesn’t end there. While the IRS makes the discussed adjustment, it fails to account for the totality of inflation and thus, one’s effective tax rate in constant inflation adjusted dollars can be expected to increase. This is because the IRS relies in connection with such adjustment a modified version of the Consumer Price Index (CPI), referred to as the Chained Consumer Price Index (C-CPI). Many if not most reputable economists argue that the CPI itself significantly understates the real inflation rate.
Indeed, in a Forbes opinion piece entitled “If You Want To Know The Real Rate Of Inflation, Don’t Bother With The CPI,” it was observed that “[t]he CPI doesn’t even meet the government’s definition of inflation.” To make matters worse for taxpayers, the CPI-C, even more severely understates inflation. So the bottom line is that bracket creep is a concern and one that will undoubtedly represent a hidden increase to your effective tax rate.
I pledge to immediately advocate for the immediate indexing of the federal tax schedule to a more accurate measure of inflation than the C-CPI, or the less imperfect CPI. I pledge to fight against all tax increases. As I hope I demonstrated in this summary, we should all be aware of the tax rate increase related to bracket creep that has been hidden from us and obscured by complicated economic concepts and government formulas.