Op-Ed: Favored Tax Cuts Would Make New Jersey’s System More Backward

This op-ed appeared in the January 18, 2015 edition of the Star-Ledger

NJPP Op-Ed“We will not win the fight to keep and create good paying jobs for our middle class families in New Jersey unless we lower taxes.” – Gov. Christie in his January 13, 2015 State of the State address.

The governor made clear in this week’s State of the State message that his quest to deliver further tax cuts to some New Jersey taxpayers is not over.

Put aside for a moment the fact that lower taxes don’t drive state economic growth (and actually hurt that growth), and that businesses don’t relocate primarily based on their tax bills. With any tax cut, it’s also worth asking: Who would benefit? While the governor gave no details in his address, he clearly favors tax cuts to help those New Jerseyans who already pay the smallest share of their income to taxes.

A Backwards Tax System

The Garden State, like every other state, calls on low-income and middle-class New Jerseyans to pay greater shares of their incomes in state and local taxes than their wealthy neighbors. New data from the Institute on Taxation and Economic Policy’s latest Who Pays? report lays it out:

• New Jersey’s poorest households – those earning less than $22,000 a year – pay 10.7 percent of their income in state and local taxes.

• Households earning just a touch more – between $22,000 and $43,000 – pay 9.2 percent of their income. In the middle, households earning between $43,000 and $71,000 a year pay 9.1 percent of their income, and those earning between $71,000 and $119,000 pay 9 percent.

• In contrast, households with incomes of more than $758,000 a year – the top 1 percent – pay just 7.1 percent of their income in state and local taxes.

These Tax Cuts Wouldn’t Help

While he was vague in his call for the Legislature to “lower taxes further,” not mentioning any tax in particular or the size of a reduction, it’s not hard to figure out just what the governor likely means.

In the last few years, the governor has championed a 10 percent across-the-board income tax cut, and has expressed support for reducing or eliminating the estate or inheritance taxes. Any of these tax changes would greatly favor those who already pay the lowest share of their income in state and local taxes. In the process the tax cuts would sap the state’s resources so much it would substantially damage the state’s ability to pay for essential public services that average people rely on each day, like our public schools.

As NJPP has shown, the governor’s proposed income tax cut would disproportionately benefit wealthy New Jerseyans, further erode New Jersey’s middle class and exacerbate a growing gap between the very wealthy and the rest of us.

A full 80 percent of the proceeds from such a reduction would go to the top 20 percent – households with incomes more than about $120,000 a year – and 39 percent to households with incomes over $758,000. Meanwhile, those making less than $43,000 or so would get about 5 percent of the cut, and the middle-class households in between would receive 15 percent.

Measured as a share of income, the wealthiest New Jerseyans would clearly see the greatest benefit, with households in the top 1 percent receiving a tax cut nearly 5 times larger than those in the middle.

Like an income tax cut, eliminating estate or inheritance taxes would make our tax system far worse. The result would likely be cuts to support for schools and other services that are the building blocks of New Jersey’s economy, with most benefits going to those inheriting very large estates, not average New Jerseyans (about nine of every ten New Jersey estates don’t pay these taxes).

While New Jersey taxes smaller estates than other states, these two taxes are for the most part levied at the very top. Estates worth over $1 million make up 72 percent of the total revenue collected by these taxes, even though they make up just 30 percent of the total number of taxed estates.

And despite misconceptions stoked by those seeking to eliminate these taxes, most of the tax revenue comes from financial assets (stocks, bonds and the like), not the family home or other real estate or family-owned businesses.

The bottom line is New Jersey’s tax system already asks those struggling to make ends meet to pay a larger share of their income in taxes than the wealthy, and cutting or eliminating any of these three taxes would make things even worse while providing no economic benefit to the state. New Jersey must focus on building a better future, but these tax cuts aren’t the way to do it.

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