NJ lawmaker says raise gas tax but let residents deduct cost from income tax
A state senator says New Jersey should allow residents to deduct what they pay in gas taxes from their income-tax liability.
The proposal by state Sen. Steve Oroho, R-Sussex, comes as lawmakers consider raising the gas tax in order to keep the state's Transportation Trust Fund, which pays for road construction projects, from running out of money.
Oroho's approach contemplates a 20-cent a gallon increase in the gas tax, more than double the current 14.5-cent tax, which is the second lowest in the nation and hasn’t been raised since 1988.
Oroho says a gas-tax hike is fair because out-of-state drivers account for an estimated one-third of gas purchases in New Jersey and should contribute more toward maintaining roads and bridges.
To soften the blow for state residents, he would let people deduct gas taxes the same way they now can for property taxes and large medical expenses.
“Let’s restructure New Jersey so that out-of-staters and users of the road from out-of-state are shouldering their fair-share burden,” Oroho said.
Such a move would seemingly have just a small impact on people’s tax bills.
A person who drives 15,000 miles a year in a car that gets 20 miles per gallon would pay an additional $150 a year in gas taxes. For a family at the state’s 2014 median household income of $88,000, reducing their taxable income by the taxes paid on the amount of gas they use could save them around $14 a year on their income taxes.
Currently in New Jersey, people can deduct their property taxes up to $10,000 from their gross income; renters can deduct 18 percent of their rent, which is considered what they paid toward property taxes. Certain medical expenses in excess of 2 percent of a filer’s adjusted gross income also may be deducted.
Oroho said it wouldn’t be burdensome for taxpayers to calculate their annual gas-tax impact.
“First of all, obviously, you have odometer readers and whatnot,” Oroho said. “However on your tax returns, it’s basically just like your medical expenses. You may have to keep some sort of record to prove. There’s many places right now – first of all, if you’re on a lease, there will be a record right there.”
Oroho said it could be as simple as keeping a book recording a person’s miles driven.
“Very simple to compare to in the IRS data right now. They give you a mileage amount that you can deduct, no questions asked. Here’s the amount you can use. New Jersey can do the same thing,” he said.
Oroho also supports a number of other tax reductions as part of a deal on raising gas taxes – including eliminating the estate tax, excluding more retirement income from taxes and creating an income-tax deduction for contributions to New Jersey charities. He said those moves would slow or stop people from moving out of New Jersey.
“So my plan is to have a complete restructuring plan dealing with taking the burden off of the New Jersey taxpayer and putting some of it on the out-of-state drivers,” Oroho said.
“We have to get tax fairness and tax reductions for New Jersey residents,” he said.
A Transportation Trust Fund refinancing is needed, presumably by the end of June, because the program doesn't have the ability to borrow more money for road work and must use all its revenues to repay past debts starting next month.
Democrats have added another concept to the mix: further increasing the earned income tax credit paid to the working poor. The state’s EITC equaled 25 percent of the federal credit when Christie took office. It was cut to 20 percent in 2010, Christie’s first year as governor, then raised to 30 percent last year. Democrats are now talking about boosting it to 40 percent.
Liberal policy activists from New Jersey Policy Perspective said an increase in the EITC to 35 percent would make more sense than a gas-tax deduction, but NJPP vice president Jon Whiten said both ideas are trying to get at the same issue: “Lessening the burden of a very necessary gas-tax hike on low-income families and middle-class families in New Jersey.”
“Any time the state designs a new tax credit or a new tax program, it has to get people to use it,” Whiten said. “That can be a big barrier to entry. The state would need to do certain kinds of outreach and administrative work to make sure people knew about it and took advantage of it. For that reason and a whole lot of others, we still think that a 5 percentage point increase in the EITC is the equitable way to do it.”
The poorest residents pay the highest percentage of their incomes toward taxes, said NJPP president Gordon MacInnes, a former Democratic state senator.
“The big advantage of having this dealt with by way of the earned income tax credit is that it meets the very big needs of those who have the lowest income, rather than trying to spread it across the entire range of drivers and gas buyers,” MacInnes said. “Which would probably have the same impact as eliminating the estate tax. It would harm New Jersey’s ability to make the investments it needs.”
Oroho, a certified financial planner, projects that taxpayer costs for repaying TTF debts and financing future transportation costs would amount to $81 billion over 25 years if there’s not a TTF plan including a gas-tax increase that dings out-of-state drivers.
“Right now, New Jersey taxpayers are paying that full burden,” Oroho said.
More than $10 billion of that would come in the form of higher property taxes, if the state no longer provides local aid for road costs through the TTF. Oroho noted that capital projects fall outside of the 2 percent cap on property tax levy increases.
Oroho suggests a TTF plan that pushes 35 percent of those costs to out-of-state residents, not only through raising the gas tax but also taxes on things like jet fuel.
“It helps reduce the amount of impact at the pump,” Oroho said.