The spending plan passed by the legislature today is a small but welcomed step towards improving tax policy in New Jersey and charting the course towards a fairer economy that works for all residents.
Among other things, the budget and a series of related bills enact modest tax increases on the two constituencies that have benefitted from tax cuts over the last five years – corporations and high-income households – while reversing 2010′s de facto tax hike on half a million working poor families and leveling the sales tax playing field so the Garden State’s Main Street stores can better compete with internet retailers.
And despite the doomsday scenarios predicted by some, there is no real-world evidence to show that either of these tax increases will lead to a mass exodus of the wealthy or businesses, or that it will make New Jersey “less competitive” or harm our economy. When taxes were raised on the wealthy twice in the 2000s, New Jersey gained a significant number of wealthy households. And despite the popular myth that high taxes are the biggest threat to New Jersey’s prosperity, state and local taxes make up less than 5 percent of the cost of doing business and are unlikely to push companies out or draw them in – other factors are far more important components of economic growth.
In the short run, these tax changes will help New Jersey forge a responsible path out of a budget crisis without hurting the state’s ability to invest in its important public assets. In the long run, these changes should be an important starting point as New Jersey’s leaders take on the important task of comprehensive tax reform. The current budget crisis has made clear that it is time for systemic changes that bring stability, predictability, coherence and fairness to state taxes, spending and investment.
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