Politics

The GOP tax plan is squeezing House Republicans in suburban New Jersey as they fight to keep their majority ahead of the midterm elections

BASKING RIDGE, N.J. — A short drive from President Donald Trump's Bedminster golf club, where residents can hear helicopter blades whir when the president touches down at his "Summer White House," Trump and the tax plan he signed into law last year will help to define one of this year's pivotal House races.

As Republican Rep. Leonard Lance runs for re-election in a district Trump narrowly lost in 2016, he has kept the president at arm's length. The fifth-term representative voted against the House GOP health-care plan after previously opposing Obamacare. He pushed for a less conservative immigration overhaul than the one the president has demanded.

But the tax plan Lance's party passed last year is more thorny for the representative. It will nick many voters in his high-income, high-tax district, where residents take the largest average state and local tax, or SALT, deductions outside of New York and California. The tax overhaul's $10,000 limit on those tax breaks was the main reason Lance and 10 other GOP House members from California, New York and New Jersey opposed it.

"I favored certain portions of [the tax plan.] … However, I want full deductibility of state and local taxes," Lance, 66, told CNBC in August. "That's an important issue here in New Jersey. And perhaps at an even more fundamental level, I have always been a deficit hawk."

Republican Rep. Leonard Lance at his campaign headquarters in New Jersey's 7th Congressional District.
Kate Sprague | CNBC
Republican Rep. Leonard Lance at his campaign headquarters in New Jersey's 7th Congressional District.

As the GOP defends Lance's seat and several others in New Jersey from Democratic challenges, the tax plan has made a challenging environment even tougher. Across the state, Democrats have bashed the tax law as they try to flip a handful of the 23 GOP-held seats needed for their party to take a House majority.

The overhaul "is extremely harmful to New Jersey, and it's economic malpractice for the country," Tom Malinowski, Lance's Democratic opponent, told CNBC in August. The 53-year-old former Obama State Department official wants to revisit tax reform to reinstate state and local tax deductions and tie corporate tax cuts to capital investment, among other potential changes.

"The one thing I know with absolute certainty is that there's precisely 0.0% chance that any of that will happen if Republicans maintain control of the House, because the leadership there is sworn to defend that bill to their dying political day," Malinowski said. "Therefore, November has to be their dying political day if we want responsible tax reform."

House Republicans in New Jersey sensed the political peril the tax plan posed. Only one GOP representative from the state, Rep. Tom MacArthur, voted for the bill in December. Residents of his 3rd District take the second-lowest average state and local tax deductions in the state.

Numerous Democrats running in House races across the country have criticized the tax law. They largely contend it helped corporations more than working families. Candidates have also warned about the deficits fueled by tax cuts leading to Republicans trimming Medicare, Social Security and Medicaid funding.

The cap on state and local deductions has given New Jersey Democrats even more ammunition in the high-income, high-tax suburbs where some of this year's critical House battles will take place.

In the 11th District, next door to Lance's 7th District, Democrat Mikie Sherrill has slammed the tax plan as she pushes to win an open seat vacated by GOP Rep. Rodney Frelinghuysen's retirement. She also wants to reinstate full state and local tax deductibility and take more steps to discourage companies from keeping cash overseas.

"We need real tax reform, bipartisan tax reform that invests in our families," the 46-year-old Navy veteran and former prosecutor told CNBC last month. "This tax plan was an incredibly partisan bill. ... When you have good tax reform, it should be good for all the states."

Sherrill's rhetoric breaks from her Republican opponent, Trump-backed Jay Webber. The 46-year-old state assemblyman has the vast majority of the tax plan's provisions: campaign spokeswoman Ronica Cleary said he "supports lower taxes on the overtaxed people of New Jersey."

Still, "he opposes the SALT deduction cap" and "will work hard to lift or raise" it if elected to Congress, Cleary added.

Based on lackluster national polling, the tax overhaul failed to boost the GOP as much as the party had hoped. The lack of enthusiasm partly drove Republicans to approve a bill Friday extending individual tax cuts in last year's plan past their 2025 expiration date. The proposal would also make the divisive $10,000 limit on state and local deductions permanent.

Both Lance and Frelinghuysen opposed the legislation, and MacArthur again was the lone New Jersey representative to support it. Lance has called the proposal an "exercise in futility" because it has little chance of getting through the Senate. Malinowski and Sherrill have both criticized the follow-up tax legislation for extending the deduction cap.

MacArthur also faces a re-election challenge in New Jersey's 3rd District against Democratic former Obama administration official Andy Kim. The challenger has campaigned on reinstating state and local tax deductions.

Voters are unsure about the tax plan's effects

Across the country, the GOP has touted strong headline economic numbers such as gross domestic product growth and the unemployment rate. As the party tries to defend its congressional majority, it argues its tax changes boosted the economy.

Living in a state with a high property tax burden, many New Jersey voters say they see a different reality.

"I think that taxes locally are just out of control," said Peter Lippe, a Republican-leaning voter in the 11th District who runs a trucking company that employs about 20 people.

Both the 7th and 11th Districts have median household incomes of more than $105,000, well above the median U.S. congressional district. Despite the areas' relative affluence, the cap on state and local tax deductions and other factors such as rising health-care costs have exacerbated cost of living concerns there.

Voters in these districts largely do not face economic struggles as difficult as Americans in many other parts of the country do. Still, the concerns they have about how GOP tax and health-care policy affect them could help Democrats win a couple critical seats in their bid to take back the House.

The districts' residents take some of the largest state and local tax deductions in the country. In Lance's 7th District, 46 percent of residents claim a state and local tax deduction, with an average of $21,276 — more than double the new cap, according to the Government Finance Officers Association.

In the 11th District, where Frelinghuysen also opposed the tax bill, 42 percent of residents claim a state and local deduction, with an average of $20,124.

Professionals in key New Jersey industries say the Trump administration's policies have contributed to some cracks in an otherwise strong economy. The limits on state and local deductions have "hurt our upper echelon market," said Denise Flanagan, a real estate agent in the Morristown, New Jersey, area who has worked in the industry for more than 30 years.

For example, a spacious Victorian-style Morristown home listed at $1.6 million that Flanagan showed CNBC in August carried property taxes of about $18,000 last year, according to local records. The $10,000 cap on state and local deductions would therefore likely increase the tax burden for the home's new owner by at least a couple thousand dollars.

A home for sale listed at $1.6 million in Morristown, NJ in the 11th Congressional District.
Kate Sprague | CNBC
A home for sale listed at $1.6 million in Morristown, NJ in the 11th Congressional District.

Still, it is not clear how much the tax overhaul will drive votes in November in both the 7th and 11th Districts. As Lance's Democratic opponent Malinowski railed against the deduction cap at a campaign event in August, one supporter turned to a friend and said, "I don't even know what a SALT deduction is."

Since voters will not file their taxes under the new code until next year, many still do not know how the changes will affect their wallets. That delay may curb some of the voter backlash.

George and Maya Schenk, retirees who live in Basking Ridge, have been independents for years but registered Democrat in the Trump era to, as George described it, "have more of an oar in the water." While the couple disapproves of Trump and the tax bill, they still say it will likely have little net effect on their finances.

George Eaton, a retired Sherrill supporter who lives in Little Falls, in the 11th District, said "the tax bill was terrible, and it hurt New Jersey." Still, Eaton — who attended a rally where Vice President Joe Biden spoke last month — added that he did not yet know how the law would affect him.

New Jersey Democrats are in a strong position

Polls six weeks out have showed both the 7th and 11th District Democrats in a solid position to flip the GOP-held seats. Lance trails Malinowski in three separate voter turnout models, according to a Monmouth University survey released this month. A separate poll from The New York Times and Siena College found a slim lead for Lance.

Sherrill also had an edge over Webber in June in three turnout forecasts, according to a Monmouth poll. The surveys suggest Trump and the GOP tax plan will do little to help either GOP candidate — especially Lance.

In the 7th District, only 39 percent of voters approve of the president, while 55 percent disapprove, according to the Monmouth poll. A staggering 47 percent of respondents strongly disapprove of Trump.

Downtown Summit, NJ in the 7th Congressional District.
Kate Sprague | CNBC
Downtown Summit, NJ in the 7th Congressional District.

Suzanne Glassman, a Democratic voter in the 7th District, is one of those who disapproves of Trump. She thinks Lance has not done enough to hold the president in check, despite his votes against the tax plan and Obamacare repeal.

"There's no one to say 'no' to Donald Trump. And Lance certainly is not saying it," Glassman said.

"The tax bill affects us," she added. "We can only deduct $10,000 from our property and that hurts us."

Asked about the tax plan, 34 percent of 7th District voters say they approve of it, versus 49 percent who disapprove, according to the Monmouth survey. Nearly half of respondents, 45 percent, said they thought their taxes will go up, compared with 20 percent who think their taxes will fall and 27 percent who believe they will stay about the same.

Polling in the 11th District suggests the tax plan could cause problems for the GOP — and shows why Sherrill is highlighting it. Thirty-eight percent in the 11th District think it will cause their taxes to rise, while 19 percent responded that they think taxes will fall and 32 percent believe they will stay the same.

About a third — 32 percent — said the law will have a "major" effect on their vote, 36 percent responded that it will have a "minor" influence, while 27 percent said it will have no impact.

Tom Maoli, an auto dealership owner in the district, supports Trump and believes the tax plan has helped his business. He said "people haven't really seen [the effect] in their pocketbooks" and thinks consumers will notice the benefits of the changes more when they file their taxes.

Still, he worries that at least one Trump policy — tariffs on steel and aluminum imports — will affect his business, as it could raise the cost of cars.

Even in Lance's 7th District, where Trump is largely unpopular, many voters believe the president has boosted their economic well-being. Cindy and Peter Ruggiero, Republican voters within the district, support both Trump and Lance despite the different brands the GOP politicians have built.

"[Trump is] getting the job done and making the country better for all of us. I think we have to give him some slack," Peter Ruggiero said, adding that he believes some Democrats will warm to the tax plan if they see more money in their paychecks.

For now, Lance is concerned about being associated with the president and the tax plan he signed into law. But he thinks voters in his well-educated district can draw a line between his party's policy and his voting history.

"I will be judged based on my record," Lance said.

— CNBC's Jordan Malter and Kate Sprague contributed to this report. Graphics by CNBC's John Schoen.

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