Op-Ed: Gas/Estate Tax Deal Fails Fairness Test

This op-ed appeared in the December 18, 2015 edition of the Bergen Record.

NJPP Op-EdAs talk of increasing the gas tax to pay for transportation projects vital to New Jersey’s economic future heats up, so does making that tax hike conditional on a cut to, or elimination of, New Jersey’s taxes on inherited wealth. While Democrats and Republicans in the State House are rallying around such a deal, using the term “tax fairness,” this trade-off is anything but fair.

Just last week, Senate Budget Chairman Paul Sarlo suggested that New Jersey completely eliminate its estate tax as a part of a deal to replenish the state’s nearly broke Transportation Trust Fund — the bank the state uses to finance important long-term capital transportation projects.

Put aside the myth — based on magical trickle-down math — that eliminating the estate and inheritance taxes, and the more than $600 million in tax revenue they produce, will not lead to a loss in revenue.

Put aside the fiction — based on anecdote, not fact — that these taxes, and the estate tax in particular, are paid mostly by middle-class New Jerseyans.

Even if you believe those falsehoods, it still makes no sense at all to link tax cuts for the very few who inherit wealth to a tax increase that will be paid by everyone in the state in a shared effort to protect and expand New Jersey most important economic asset. And no matter how you slice it, this deal certainly fails the “tax fairness” test.

In fact, such a deal would make New Jersey’s tax structure less fair and less equitable.

Any gas tax increase will affect New Jerseyans earning less than $45,000 a year more than everyone else, and those making more than $121,000 a year less than everyone else. If the gas tax were increased by 20 cents a gallon, for example:

* Those making less than $23,000 would be hit the hardest, with a 0.4 percent increase in tax paid as a share of income.

* Those making slightly more, but less than $45,000, would see a 0.3 percent increase.

* Families in the middle, earning between $45,000 and $121,000 a year, would see a 0.2 percent increase.

* Families at the top — those making more than $121,000 — would pay no more than 0.1 percent more.

This additional tax liability would fall on the New Jersey families who already pay the biggest chunk of their earnings to taxes — the bottom 40 percent earning less than $45,000, making the state’s already regressive tax structure even more so.

Meanwhile, eliminating the estate tax would deliver a windfall to some of New Jersey’s wealthiest families:

* Just 4 percent of estates — those of New Jersey’s wealthiest families — are large enough to owe any estate tax.

* Of these, about two-thirds of the estates include accumulated wealth more than $1 million.

And while New Jersey’s estate tax threshold is lower than in other states, it’s a stretch to say this tax is a levy on the middle class:

* The median net worth of New Jersey households is $117,000, one-fifth the threshold for filing an estate tax.

* Even households in the top 20 percent have an average net worth of $366,000, still far below where the estate tax kicks in at $675,000.

Even though the inheritance tax does have a lower threshold than the estate tax, the fact remains that most New Jerseyans will pay little or no inheritance tax — ever. Fewer than 7 percent of estates owe any inheritance tax. What’s more, more than 75 percent of inheritance tax collections come from the largest estates — those worth more than half a million dollars. And nothing passed on to the closest relatives (parents, children, grandchildren, grandparents or spouses including civil union and domestic partners) is subject to the inheritance tax.

If New Jersey policymakers are truly interested in ensuring that a much-needed fuel tax hike meets the “tax fairness” test, they ought to focus not on cutting taxes for the state’s wealthiest, but in using a tax credit to offset the disproportionate impact such an increase will have on the Garden State’s low- and moderate-income residents.

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