Adopting a wealth proceeds tax based on federal law could raise more than $1.1 billion to help balance New Jersey’s state budget, while affecting only a small share of the state’s wealthiest households. New Jersey policymakers could direct those funds toward education, health care, and other investments families need.
A core problem facing states is the limited ability to tax wealth, as opposed to income:
- Income is the money paid to a household, such as wages or salary, interest, or business profits.
- Wealth is the total value of all a household’s assets minus its debts, including the value of real estate, stocks, investments, and trusts, while subtracting debt such as mortgages or student loans.
Traditional tax systems tax income or sales transactions but have a difficult time taxing the wealth increases of households with high incomes. Put another way, Jeff Bezos’s wealth doesn’t come from his annual salary, but from the increasing value of his stake in Amazon and other companies. These types of increases in wealth are often taxed at preferential rates, when they are taxed at all.
New Jersey can take one step to solve this problem by adopting a wealth proceeds tax, based on the federal tax code. Rather than a direct tax on wealth, the federal government currently applies a 3.8 percent “net investment income tax” to the passive income generated by interest, dividends, and capital gains — the “proceeds” of wealth.
Without requiring burdensome new regulations, New Jersey could adopt the federal definition and incorporate it into its tax filing process. Minnesota already set a precedent in 2023 by doing so with a 223-word bill that codified this new revenue source. This would improve on New Jersey’s existing tax system, which treats capital gains such as stock sales as regular income.
Adopting a 4 percent tax on wealth proceeds based on the federal definition could raise more than $1.1 billion — a much-needed source of revenue at a moment when the state faces more than $1 billion in structural deficits heading into Fiscal Year 2027.
Only about 6.5 percent of New Jersey households would be affected by this change, with two-thirds of those households bringing in more than $1 million annually. More than 93 percent of New Jersey households would see no change at all.
As New Jersey policymakers consider revenue options, a wealth proceeds tax is a useful tool to raise revenue that focuses on the wealthiest individuals, rather than working-class and middle-class families.
