Raju Chebium • WASHINGTON BUREAU • December 19, 2010
WASHINGTON — The $858 billion measure that will cut taxes and extend unemployment benefits would do something else of keen interest to New Jersey — prevent 1.6 million state residents from being hit with the Alternative Minimum Tax for two years.
That tax, which middle-class and wealthy filers pay on top of federal income taxes, affects more people in high-wage New Jersey than any other state.
The bill, which President Barack Obama signed into law Friday, passed the House 277-148 around midnight Thursday. Liberal Democrats were unable to increase the estate tax rate on the wealthy, a major sticking point that had threatened to doom the measure, which Obama negotiated with congressional GOP leaders.
Ten of the 13 New Jersey House members voted for the bill, with Democrats Rush Holt and Donald Payne and Republican Scott Garrett voting against it. The measure passed the Senate on Wednesday, 81-19. In a rare development, New Jersey Democrats Frank Lautenberg and Robert Menendez split their votes, with Lautenberg voting no and Menendez voting yes.
The measure would prevent tax increases averaging $1,400 for New Jersey families come Jan. 1, extend unemployment benefits for nearly 322,000 unemployed Garden State residents and cut Social Security payroll taxes from 6.2 percent of annual income to 4.2 percent for a year.
The AMT provision will keep affected New Jerseyans from having to pay up to $5,600 in additional taxes, according to Menendez, who serves on the Senate Finance Committee and was a leading advocate of the AMT "patch."
"For many of us, this is not about whether or not to support tax cuts for millionaires; it is about whether we are going to stand up for the middle class, protect them from the tax increase that's looming two weeks from now and actually provide significant additional relief beyond that," Menendez said in a statement.
Menendez said he also led an effort to preserve a $230 monthly transit benefit, originally part of the $814 billion economic stimulus bill that Obama signed into law in February 2009. The subsidy — used by many New Jerseyans who commute to New York and Philadelphia — was going to be cut to $110 a month beginning Jan. 1 unless Congress acted, according to the American Public Transportation Association.
Even if the tax-cut bill had failed, middle-class New Jerseyans wouldn't have had to pay anything close to $5,600 in annual AMT taxes, said Steve Wamhoff of Citizens for Tax Justice, a liberal advocacy organization. In a more accurate example, he said, a couple earning $100,000 a year, would have had to pay an extra $796.
"Most of what Congress is doing when it passes AMT relief is helping taxpayers among the richest 20 percent," Wamhoff said.
The AMT originally was meant to apply only to the wealthy but eventually affected middle-income taxpayers because it wasn't adjusted for inflation.
Rather than permanently repeal it — which could deprive the Treasury of at least $1 trillion in future revenue, Congress has adopted a series of temporary fixes.
According to the Joint Committee on Taxation, the current two-year AMT fix — which will keep the tax from applying to people earning less than $47,450 and married couples earning less than $72,450 — will cost $137 billion.
New Jersey's congressional lawmakers generally agree that fixing the AMT is important, but not every lawmaker who voted for the tax-cut package highlighted the AMT language as a key reason.
Rep. Rob Andrews, a South Jersey lawmaker and a member of the House Budget Committee, touted the overall bill's potential to create jobs by providing tax relief to small businesses, which employ most Americans.
"The country will benefit because Democrats and Republicans have come together to fight this painful recession," the Haddon Heights Democrat said in a statement. "We needed to pass this bill to help put our people back to work — we now have a responsibility to work across party lines to cut our debt and deficit."
Lautenberg and other critics of the tax-cut package objected to extending Bush-era tax cuts for individuals making at least $200,000 and couples making at least $250,000. Other critics, including Holt, cited the provision cutting Social Security payroll taxes, which will deprive the retirement system of much-needed revenue.
"You can't build a building from the chimney on down and you can't build a society from the wealthiest on down," said Lautenberg, a multimillionaire. "Windfalls for the wealthiest of us do not benefit our economy or create jobs."
Holt accused Congress of shortchanging Social Security's future and making it "just another bargaining chip" in a political game.
"As much as we need economic stimulus now, we will need Social Security for decades to come," the Hopewell Township Democrat said in a statement.
Raju Chebium: rchebium@gannett.com