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Would Corzine budget smack middle class?

From his decisions on who would keep their property-tax rebates all the way down to the call on which drinks to tax - wine, for example, but not beer - Gov. Corzine and his aides have said his new budget makes tough choices, but protects the typical New Jerseyan.

Gov. Corzine introducing his plan Tuesday. While foes said cuts would hurt the middle class, he said property taxes would rise even higher withouta shift in aid.
Gov. Corzine introducing his plan Tuesday. While foes said cuts would hurt the middle class, he said property taxes would rise even higher withouta shift in aid.Read moreMEL EVANS / Associated Press

From his decisions on who would keep their property-tax rebates all the way down to the call on which drinks to tax - wine, for example, but not beer - Gov. Corzine and his aides have said his new budget makes tough choices, but protects the typical New Jerseyan.

Opponents have had a different take.

Republicans called the budget "a declaration of war on the middle class" and said the governor had "stabbed the average middle-class taxpayer in the back," adding voltage to an already-charged election year.

As Republicans hammer away and Corzine pushes back, just how his proposal will affect the middle class is shaping up as the primary battle line for the budget and November's elections.

The argument focuses on the pieces that have a direct impact on New Jersey's property taxes, which average $7,045.

Critics point to Corzine's plan to eliminate property-tax rebates for homeowners earning more than $75,000 and to scale them back for households making between $50,000 and $75,000, except for seniors. Making it a double whammy, Republicans say, is Corzine's plan to eliminate the income-tax deduction that lets filers write off up to $10,000 in paid property taxes.

"The middle class is angry and scared, and Gov. Corzine's budget will only make matters worse for them," Assembly Minority Leader Alex DeCroce (R., Morris) said in a statement. "Jon Corzine wants our taxpayers to bail out his mistakes with their tax dollars."

The worst scenario is for a homeowning couple younger than 65 earning between $75,000 and $100,000. They could lose a rebate check that averaged $1,030 last year and a tax deduction that might save from $153 to $270, on average. For those in this bracket with larger property-tax bills, the deduction can save up to $552.

Everyone except seniors could lose the deduction, whose benefits vary depending on income and property tax and which Corzine said would be restored after one year. Those with higher incomes and bigger tax rates save more.

Corzine, however, said the criticism missed the bigger picture. Two million of the 2.5 million people who got rebates last year would still get some amount in a check.

By imposing cuts and tax increases on those with higher incomes, the governor said, he can put more money into schools and limit a municipal-aid cut to 2 percent. Both steps are aimed at helping keep property taxes down, he said, and ultimately would save homeowners more than the deduction.

"Putting more into education stabilizes property-tax bills, which has a much broader impact and a much more meaningful impact," Corzine said.

Without the aid, he said, steep property-tax hikes would outweigh the deduction.

For people younger than 65, the administration said, the deduction saved an average of $219. By comparison, each year from 2004 to 2007, the average property-tax bill grew between $350 and $425. Last year, the average increase was $250.

Corzine argued that his tax cuts and the sliding scale on rebates would help those who needed it most and would put the largest burdens on the most well-off.

"The deduction is the antithesis of progressive," he said.

According to the administration, a couple earning $50,000 would lose $60 to $80, on average. The change would cost a $75,000-income couple $153, and a couple earning $100,000 would lose a $270 tax break.

For those with larger incomes or larger property-tax bills, the impact could be more dramatic. Corzine said the money lost by most middle-class filers would be more than offset by the $800 federal tax cuts coming as part of the national stimulus package.

Whether that adds up to an attack on the middle class or a defense of its checkbooks depends largely on the definition of middle class in a state with a high cost of living.

The Corzine administration pointed out that New Jersey's median household income - $67,000 - fell right in the range of homeowners whose rebates would be fully or partially protected.

Rebates for those earning $50,000 or less would remain the same as last year, about $890. Those earning between $50,001 and $75,000 would get $670, down from about $1,000. The $1,030 average checks for people earning between $75,001 and $100,000 would be eliminated. People who made between $100,000 and $150,000 would lose checks that averaged $640.

The administration estimates that 1.6 million renters, senior citizens, and homeowners younger than 65 would get the same rebate amounts as last year.

On the flip side, 500,000 homeowners younger than 65 would lose their rebates entirely and 232,000 would see reductions. The rebate cut and deduction loss together could cost homeowners $917 million: $517 million in rebates and $400 million in income taxes.

Economist James Hughes said that, with inflation, the state's median income was around $70,000, right about the rebate limit.

The cutoff "looks like it will probably hit just under half of the state's households," said Hughes, dean of Rutgers University's Edward J. Bloustein School for Planning and Public Policy.

And gauged by family income, the rebate plan looks less-generous. The median family income in New Jersey is $80,780, meaning that more than half fall above the rebate cut-off. The median income for families with two wage earners is $98,145.

Herbert Bernstein of Howell, N.J., illustrates the impact on those who would lose both their rebate and the deduction. Bernstein, 64, qualified for an $800 rebate last year, but makes too much under Corzine's proposed 2009 guidelines to receive a check.

He would lose that $800 rebate plus $200 to $300 in income-tax deductions.

Bernstein, a comptroller at a clothing retailer, said he knew others had much worse situations. But with a pay freeze at work and his retirement account taking a beating, the budget plan was one more piece of bad news.

"It's a tough atmosphere out there," Bernstein said, "and it seems that everywhere you look, you're getting a kick in the behind."

In a Quinnipiac University poll released last week, respondents were almost evenly split on eliminating or reducing property-tax rebates.

Corzine conceded that suspending the deduction would likely cause the biggest "brouhaha" in his budget.

A few Democrats have already taken stands against the plan. Republicans are predicting (and hoping) that it will be the final straw that leads to revolt at the polls.

The true impact likely won't be known for months. The Legislature can alter the budget, and rebate checks won't go out until the summer or fall. Even if the deduction cut remains, it won't affect tax bills until April 2010, five months after the election.

Between now and November, however, the GOP is sure to raise the issue every chance it gets.

"I predict the taxpayers will have a few choice words for the governor in response, and thank you won't be among them," DeCroce said in a statement.

Corzine said he welcomed the challenge from Republicans.

"I know I'm going to have that political argument," Corzine said. "It is so miscast, and we have been so middle-class-focused on a comprehensive basis, I actually welcome the debate."

Table: What the changes could cost you. A18.EndText