This op-ed appeared in the February 19, 2016 edition of the Asbury Park Press.
By “abolishing” New Jersey’s estate tax, as Gov. Christie has proposed doing, the governor would deliver a huge tax cut to a few thousand of New Jersey’s most well-off households while seriously threatening resources needed for public colleges, safe communities, health care and other important services.
This tax on inherited wealth, the governor says, is “punishing the next generation and hurting middle class families,” and leading middle-class families “to move to other states as they age.”
But this assertion is based in little more than anecdote. The facts clearly tell a different story.
It’s time to have an accurate conversation about these taxes, who actually pays them and whether or not the estate tax is driving people away from New Jersey.
The estate tax was originally established during the Gilded Age to address massive concentration of wealth. Given the growing gap between the very rich and everyone else these days, the estate tax’s role in tax fairness is more important than ever.
First, let’s be clear. Ninety-six percent of New Jerseyans are exempt from paying this tax. Each year about 70,000 people in New Jersey die. On average, fewer than 3,000 of the estates they leave owe the estate tax. These estates belong to New Jersey’s wealthiest households.
Only 94 of those estates – the very largest, with taxable assets over $5.34 million – owe 41 percent of estate tax in a given year. Eliminating the estate tax would give each of these wealthy families a $1.3 million tax break – a tax reduction 58 times larger than the break for the families with taxable assets under $1 million.
Yes, the estate tax has been cut and eliminated in dozens of states in the past 15 years, as states have followed President George W. Bush in a race to the bottom on taxing inherited wealth. Yet the amount of revenue collected in New Jersey, where the estate and inheritance taxes haven’t budged, has not decreased during that time. In fact, it has jumped 44 percent. Ironically, Gov. Christie anticipates another increase this year. The 2017 budget just proposed expects to collect the highest amount ever from these taxes, at $848 million.
And while some people leave New Jersey every year, few are fleeing the estate tax – or most other taxes, for that matter. On the whole, older New Jerseyans leave the state to retire to warmer areas, be closer to family or find less expensive housing.
Despite the rhetoric, differences in tax rates among states have little to no effect on whether and where people move. In fact, few Americans – about 2 percent – relocate from state to state each year, and they do so largely for jobs, family and weather – not taxes.
While the governor says its “not debatable” that 2 million residents left New Jersey in 10 years, he – like the business groups he cites – relies on fuzzy math and incomplete statistics to try to make his tax-cutting case. And the numbers don’t add up.
Yes, 2 million residents did leave New Jersey between 2005 and 2014. But guess what? New Jersey actually gained about 200,000 residents over that time, according to the U.S. Census. That’s because even as some folks left, plenty of others arrived: about 1.4 million people moved to New Jersey from other states, about 600,000 moved here from abroad and many natives born here stayed put. In fact, more people than ever live in New Jersey.
What’s more, those moving out were not overwhelmingly wealthy. In fact, they had lower average incomes than those who stayed, and about the same average incomes as those who moved in. In other words, there has been no “exodus on the Parkway,” despite the myths spread by folks looking to cut taxes for those at the top.
Without question the personal narrative can have a powerful influence on politicians. It is often the most effective way for constituents to be heard and can sometimes be what sways legislators for or against a certain policy.
But without concrete data to support that narrative, the compelling but unfounded assertion that taxes drives wealthy residents away becomes the center of attention. And that is a dangerous premise from which to push for public policy. With all the critical needs calling for attention, New Jersey deserves a better form of discourse.