TRENTON - Most people making more than $100,000 a year shoulder a significantly lower state income tax burden in New Jersey than elsewhere, according to a new analysis from New Jersey Policy Perspective.

New Jersey's Income Tax: How Progressive? was written by John Zerillo of St. Joseph's College in Maine and offers a detailed look at the state's income tax burden. The report builds on other NJPP work making the case for rethinking New Jersey's tax structure to spread the burden more fairly. Earlier this year NJPP released Upside Down & Backwards: Taxes in New Jersey, which showed that the lowest-income New Jersey households pay twice the share of their income in major taxes as the highest-income households.

"We ask New Jersey's income tax to do two things: raise revenue for services and offset the burden of other taxes that fall heavily on low-and middle-income people," said NJPP President Jon Shure. "This analysis shows clearly that the tax could do a better job of both and that changing it in that direction makes sense." NJPP is a nonpartisan, nonprofit organization that conducts research on state policy issues.

A moderate, balanced restructuring of the New Jersey income tax need not be complicated, according to the analysis. Zerillo suggests multiple incremental increases in tax rates, only at higher levels of income. Such increases would:

• affect relatively few taxpayers
• provide significant revenue
• help meet the state income tax's constitutional mandate of reducing the property tax burden
• allow state revenues to grow at increasing rates as the state economy grows and individual incomes grow within it

The analysis is based on US Census Bureau data that allows a comparison of how the tax burden falls on households of the same income category in different states. New Jersey is compared to states in several categories: those in close geographic proximity; states with relatively flat tax structures; the most heavily taxed states; other densely populated states; and the national average.

The results are consistent: most households making $100,000 a year and up pay less income tax in New Jersey than elsewhere. For example, a household that pays $2,641 in New Jersey income tax would pay $4,115 in Connecticut and $5,138 in New York. Among states located close to New Jersey only Pennsylvania has a similar tax burden: $2,800.

States where tax rates tend to be relatively flat, as opposed to progressive, are often viewed as having a low tax burden for upper income households. But even among these states, New Jersey's burden is less. That household paying $2,641 in New Jersey would pay $3,870 in Mississippi and $5,508 in South Carolina.

Among all states with an income tax, a household making $100,000 a year would pay an average of $4,827. Even when states with no income tax are factored in, the average tax burden at that income level-$3,958-is higher than New Jersey's.

It could be argued, then, that upper-income New Jerseyans pay less than their fair share or, at the very least, that additional, moderate increases in the state income tax rate-particularly on income somewhere above $100,000-would not jeopardize New Jersey's standing as a low income tax state in relation to most of its neighbors.

As the need to find new revenue mounts from the twin pressures of declining federal assistance and a rising need to reduce the burden of local property taxes, Zerillo's analysis makes it clear that there is room for at least some of the revenue to come from the state income tax. "New Jersey must face up to the reality that while its state income tax structure is technically progressive, most upper income citizens pay a lower percentage of their income toward the income tax than their counterparts in other states," the analysis says.

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© 2008 New Jersey Policy Perspective