Op-Ed: Let’s Get Real: Income Tax Increases Don’t Drive Wealthy New Jerseyans Out of State

June 23rd, 2014  |  by  |  Published in Budget and Tax Policy, Editorials & Op-Eds, NJPP Blog: As a Matter of Fact ...

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This op-ed appeared in the June 22, 2014 edition of the Star-Ledger.

NJPP Op-EdAs New Jersey’s budget deadline approaches and policymakers of different stripes make a push for their competing visions for the state, one pesky little myth has reared its ugly head again: that increasing taxes, particularly income taxes on the highest-income households, will result in a mass flight of millionaires away from the state, leaving New Jersey’s finances in even worse shape.

But the truth is, the myth that the wealthy will “get up and walk” rather than pay higher taxes, as the governor suggested last month, has no relationship to reality.

Let’s look at the facts.

First off, few Americans move from state to state in any given year – less than 2 percent – according to Census and Internal Revenue Service data. Of this tiny minority of interstate movers, the lion’s share say that employment opportunities, family or the weather are the reasons for the move, not taxes.

Between 1993 and 2001, 1.7 million households moved out of New Jersey, while 1.4 million moved in and millions more stayed put and continued to grow their families in the Garden State. Overall, the state’s population grew because of births and striving people moving from other countries. The average yearly incomes of those moving out was about the same as those moving in from other states (the average of those moving out was $1,896 higher), but substantially less than those that stayed put, which was $6,353 higher than those moving away.

So, the bottom line here: some folks move away, some folks move here, lots stay in the state, and the overall impact on incomes – and income tax collections ¬– is close to nil.

Next, let’s look at a case study. In 2004, New Jersey increased the top income tax rate on households reporting more than $500,000 in income to 8.97 percent from 6.37 percent. This initial “millionaire’s tax” is still on the books, and was supplemented by a temporary one-year tax increase on incomes over $400,000 in 2009.

If tax increases on high-income households truly cause these wealthy to flee the state en masse, as some of New Jersey’s leaders contend, you’d expect that that one-two punch of tax increases would have decimated the ranks of the Garden State’s wealthy families.

But it turns out the opposite happened.

The number of income tax filers reporting incomes above $500,000 nearly doubled from 2002 to 2011, rising to 46,952 from 26,699, according to the state’s records.

So while some wealthy New Jerseyans certainly left the state after the 2004 tax increase, leading to the loss of about $16 million in tax revenue between 2004 and 2007, New Jersey did not lose revenue. The 2004 increase generated a net gain of about $1 billion in revenue each of those years, and has continued to generate significant revenue in the seven years since. That’s money the state uses to invest in schools, healthcare, safe communities and other building blocks of prosperity.

Even a self-styled “report” by a wealth management firm that has been cited a lot by the press and anti-tax legislators couldn’t hide the fact that millionaire flight is not happening – despite its best efforts to perpetuate the myth.

The release of that report, called “Exodus on the Parkway,” this spring generated headlines about – you guessed it – an “exodus” of wealthy households from New Jersey that it argues originated with the 2004 tax increase.

But in its conclusion, even “Exodus” comes clean.

“New Jersey has suffered a small out-migration of high income households,” it says before adding: “The number of high-income households in New Jersey has continued to grow significantly.”

It’s no surprise that the millionaire migration thesis doesn’t hold up when compared to the facts. Much like the insistence that cutting state taxes will spur economic growth, it’s the kind of magical thinking that has potentially grave consequences for New Jersey. We need to base tax policy on what it takes to meet growing needs and foster economic growth – not myths.


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