Category: Blog

Budget Deal: Here’s What You Need to Know

Posted on by Gordon MacInnes

Shutdown averted!

Months of drama over the budget ended this weekend when Gov. Murphy and legislative leaders reached a deal that kept the state open and turned the page on years of austere fiscal policy.

This year’s budget makes bold, new investments in critical public assets like public education, transit infrastructure, and affordable housing. It also ensures New Jersey’s wealthiest individuals and corporations pay their fair share in taxes. NJPP has been a strong advocate for many of the important changes realized in this budget.

Thanks to your support, some of NJPP’s most important policy recommendations made it into this year’s budget. These big wins include:

A Fairer Tax Code:

  • Mega-Millionaires Tax: New Jersey’s tax code just got a little more progressive with the creation of a new tax bracket for the state’s wealthiest individuals. Earnings over $5 million per year will now be subject to an income tax rate of 10.75 percent.
  • Corporate Business Tax: After receiving a windfall from last year’s federal tax changes, large corporations will now pay an average 2 percent surtax to help fund critical programs that all New Jerseyans rely upon.
  • Closing Loopholes: New Jersey is now the 27th state, plus DC, to enact combined reporting, a measure that stops corporations from hiding taxable income outside of New Jersey.

 

Important New Investments:

  • Helping Working Families: The Earned Income Tax Credit, one of the state’s most effective anti-poverty measures, got a big boost, and a new child and dependant care tax credit will help approximately 74,000 low-income families better afford child care.
  • Keeping Families Together: Undocumented families facing deportation will now have access to legal assistance under a new pilot program. Universal legal representation promotes due process and has been proven to result in better case outcomes.
  • Improving Transportation: After years of neglect, New Jersey Transit will receive $242 million in new funding to help restore and modernize the state’s transportation system.
  • Funding for Education: From pre-kindergarten to community college, public schools across the state received a big boost in funding.
  • Addressing Child Poverty: Cash assistance available to New Jersey’s poorest families was increased for the first time in thirty years, and more children may now qualify for TANF with the elimination of the punitive “family cap” policy.

The Millionaires Tax: A Fair, Stable Source of Revenue

Posted on by Brandon McKoy

New Jersey faces its second shutdown in as many years as legislators are at odds with Gov. Murphy's proposals to restore the sales tax to 7 percent and increase the state income tax on earnings over $1 million per year. Enacting a "millionaires tax" on New Jersey’s highest-earning individuals is a reliable, fair, and necessary measure in both addressing runaway income inequality and ensuring the state has ample resources to reinvest in critical public assets.

Key Findings

  • Individuals earning more than $1 million per year make up 0.48 percent of tax filers in New Jersey.
  • Gov. Murphy's proposed 10.75 percent tax rate on earnings over $1 million per year would not be an outlier compared to the top income tax bracket in other states.
  • A "millionaires tax" would help balance the regressive nature of New Jersey's tax code.
  • New Jersey’s share of high-earners has more than doubled since the state started keeping detailed data on income in 2002.
  • There are over 20,000 tax filers who earn more than $1 million per year, with a majority living in northern New Jersey (map and table below).


Putting New Jersey’s Tax Code in Perspective

Since 2010, New Jersey’s top income tax rate has remained at 8.97 percent as repeated attempts to increase the rate were vetoed by the governor. While tax reform efforts have stagnated, though, other states have moved forward in creating more equitable income tax structures. Today, New Jersey’s top income tax rate is no longer at the very top of the states; in fact, it is the sixth highest in the nation behind California, Iowa, Minnesota, and Oregon – many of which also levy higher rates on lower incomes than New Jersey.

Other states, like California and Minnesota, have changed course to rebalance their income tax code by asking top earners to pay more. In 2012, California voters decided to raise taxes on all residents, but mostly on the very wealthiest Californians, to help reinvest in public education.

Millionaire Tax Flight is a Myth

Claims that millionaires and small business owners spooked by higher income taxes will flee the state are commonplace, but that does not make them accurate. These anecdotal stories are unsupported by real-world statistics. In fact, the majority of rigorous studies on the subject have found a negligible correlation between state taxes and interstate moves.

When income taxes were first raised on New Jersey’s highest earners back in 2004, one study found a slight uptick in the number of millionaires who left New Jersey. Their exit cost the state about $16 million between 2004 and 2007, but the state gained about $1 billion from those who remained. In other words, the revenue loss was less than 2 percent of the revenue gained. What’s more, the number of New Jersey tax filers with income over $500,000 rose by 82 percent between 2003 and 2007, nearly doubling from 28,178 (representing 1.1 percent of all filers) to 51,187 (1.3 percent of all filers). And that trend has continued after a sharp dip during the Great Recession of 2008 and 2009. Since hitting a recessionary low point in 2009, the number of New Jersey tax filers with income over $500,000 has rebounded by 44 percent, growing from 38,496 (or 1.3 percent of all tax filers) to 55,322 in 2014 (2 percent of all filers), even as New Jersey’s overall economic recovery has remained weak.

New Jersey's Statistics of Income report shows that between 2002 and 2015, the number of millionaires in New Jersey more than doubled from a little over 8,000 to more than 20,00. In fact, the report now has a line to detail the number of filers with more than $10 million in yearly income; that line didn't exist when the report was first published.

Mapping New Jersey's $1 Million+ Earners

Recently, NJPP took a look at state data to map out where tax filers who report an annual income of more than $1 million live throughout the state. An interactive map is below, followed by a sortable table of $1 million+ earners, by district.

New Jersey's $1 Million+ Earners, by District

The 27th legislative district has the most individuals – 2,515 – earning more than $1 million per year. The 35th legislative district has the least, with only 18 individuals earning more than $1 millions per year. Overall, these high-earners make up only 0.48 percent of tax filers in New Jersey.

Gov. Murphy’s Budget Would Make Tax Code More Progressive

The tax changes proposed in Gov. Murphy’s first budget would bring more balance to New Jersey’s tax code by raising taxes on the wealthiest one percent while reducing them for the lowest-income New Jerseyans. The overall effect would be a tax code that more accurately reflects one’s ability to pay. Without raising the income tax on individuals earning more than $1 million per year, the state’s top one percent of earners would pay a lower percentage of their income in state and local taxes than most New Jerseyans.

As the level of income equality grows ever more dangerous throughout our state, it should be a priority of lawmakers to ensure that the state budget acknowledges this reality and asks those with the ability to provide more to do so and pay their fair share.

But What About the Federal Tax Changes?

According to a side-by-side analysis of the Tax Cuts and Jobs Act and Gov. Murphy’s plan, the top one percent of taxpayers – those earning over $924,000 a year and with an average annual income of about $2.5 million – would still come out ahead. That’s because their average tax break from the federal tax law is slightly larger than their average tax increase at the state level.

Some of these wealthy households may experience a slight tax increase depending on their specific circumstances, but as a whole, the top one percent would not be burdened under Gov. Murphy’s tax plan. In fact, they would see little to no change to their overall tax bill, while New Jersey’s most important assets would see a much-needed boost in funding.

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Polls Show Consistent, Widespread Support for New Taxes to Support Investment

Posted on by Sheila Reynertson

Independent public opinion polls conducted before and after Gov. Murphy’s election show consistent support for raising taxes on New Jersey’s wealthiest households and corporations. These polls reinforce the notion that targeted tax increases are a popular way to help generate a stronger economy. In pursuing much-needed tax reform, policymakers should feel emboldened by the public attitudes reflected in these polls – New Jersey voters value a balanced tax code that provides adequate funding for the state’s most important assets.

A poll commissioned by New Jersey Policy Perspective (NJPP) last fall showed that voters are willing to support tax increases – even on themselves – in order to invest in critical assets. These findings were complemented by Rutgers’ Eagleton Center for Public Interest Polling, which similarly found widespread support for new taxes just after the 2017 gubernatorial election. The first NJPP poll was conducted at the end of September 2017 with a sample of 750 likely New Jersey voters. The Rutgers-Eagleton poll was conducted in mid-November 2017 with a sample of 1,203 adults.

Support for new sources of revenue has remained consistent since then, according to two polls from spring 2018: one by the Stockton Polling Institute and another NJPP-commissioned poll conducted by Anzalone Liszt Grove Research. The Stockton poll was conducted in late March 2018 with a sample of 728 adults. The second NJPP poll of 600 likely New Jersey voters was conducted at the end of April 2018.

Income Taxes
All recent polling points to strong support for a fairer income tax structure. The Rutgers-Eagleton poll found that 68 percent of New Jersey adults support raising taxes on households making more than $1 million a year. Both NJPP polls showed at least 70 percent support. These findings are consistent with similar polls conducted by Stockton University and Quinnipiac University.

NJPP explored other income tax proposals, including increasing state taxes on the wealthiest five percent of all households, and found an average support of 71 percent of likely voters – including 76 percent of independents and 57 percent of Republicans. The most recent NJPP poll also found that about half (49 percent) of voters were more likely to support their state representative if they opted to raise income taxes on households earning $1 million a year or more.

Estate Tax
Restoring the estate tax, which until last year was paid by only the wealthiest five percent of New Jersey heirs, is also popular with New Jersey voters. Both NJPP polls found that over 60 percent of likely voters support bringing back the estate tax back with a $1 million threshold, with slightly higher support for taxing estates worth over $2 million. The Rutgers-Eagleton poll, however, found just 28 percent in support this policy.

A possible explanation for this discrepancy could be that the Eagleton poll only asked about “reinstating the estate tax” without providing any context. As the 2017 NJPP poll shows, there is widespread voter misunderstanding about who pays the estate tax.The NJPP polls offered more context about who would actually be affected by this tax on inheritance which could explain such strong support for the proposal.

Rutgers-Eagleton respondents also said property taxes were the “least fair” of the taxes (75 percent). That result tracks with the first NJPP poll, which found most likely voters think the income tax is a fairer way to pay for state and local services than the property tax. That poll also showed a strong majority (69 percent) think the wealthiest five percent of households are paying too little in state taxes.

Sales Tax
All polling points to moderate support for rolling back the recent reduction in the state sales tax, especially if the proposal is tied to specific funding needs. In NJPP’s 2017 poll, likely voters were asked how much the reduction helped them or their families. Sixty percent of likely voters responded, “Not at all.” Both NJPP polls show at least 50 percent in favor of returning the sales tax to 7 percent, but the Stockton poll found stronger support (61 percent) when the extra revenue raised was dedicated to funding schools and higher education.

The Rutgers-Eagleton poll explored the possibility of expanding the sales tax to include more types of purchases like clothing and groceries, which predictably polled very poorly with 86 percent opposed. Such a proposal may be deeply unpopular because it would disproportionately harm low- and middle-income families. However, it would be interesting to see that same question asked with different examples of currently exempt services commonly utilized by the wealthy, like interior decorating, private chartered flights, and tax accountants. Chances are support for sales tax expansion on such high-end services would be much stronger.

Corporate Taxes
NJPP’s first poll found that voters are more likely to think corporations are paying too little in state taxes than paying their fair share by a wide margin (66 percent to 14 percent, respectively.) One way to fix this would be to enact a policy that closes tax loopholes used by multi-state corporations. Known as “combined reporting,” this policy proposal proved to be quite popular even without much context or explanation. The Rutgers-Eagleton poll found that there is majority support (57 percent) for this policy and the 2018 NJPP poll found even stronger support (69 percent). That same poll also found that 58 percent of likely voters support creating a three percent tax surcharge on businesses with more than one million dollars in net dollars.

Targeted Investments
Though the framing of how tax revenue should be used differed slightly, polling results consistently demonstrated that investing in New Jersey’s assets is a popular concept. The Rutgers-Eagleton poll asked how willing one would be to see a small increase in their state taxes to pay for free community college for all, free universal pre-kindergarten, full funding of all school districts, infrastructure investments and public employee pension funding. All five options received majority support when presented this way.

The NJPP polls approached targeted investments in two ways. The 2017 poll asked likely voters how important an extra billion dollars of annual revenue would be for each item presented. Within this context, all of the items received majority support with improving roads and bridges, cutting property taxes for middle- and lower-income New Jerseyans, and cutting taxes for these New Jerseyans receiving the most support (94 percent, 92 percent, and 91 percent support). Improving public transit service, increasing funding for schools, and reducing the cost of public college tuition also received majority support (85 percent, 82 percent, and 82 percent).

The 2018 NJPP poll asked likely voters to prioritize funding options if the state had an extra one billion dollars of revenue each year. The three most popular choices for targeted funding were schools, roads and bridges and property tax relief for the middle class.

Endnotes

September 2017 poll commissioned by New Jersey Policy Perspective and conducted by Anzalone Liszt Grove Research: https://www.njpp.org/budget/poll-most-new-jerseyans-want-bold-solutions-on-taxes-public-investments

November 2017 poll conducted by Eagleton Center for Public Interest Polling of the Eagleton Institute of Politics: http://eagletonpoll.rutgers.edu/state-of-the-garden-state-taxes-2018/

March 2018 poll conducted by Stockton Polling Institute of the William J. Hughes Center for Public Policy: https://stockton.edu/hughes-center/polling/documents/2018-0404-stockton-poll-marijuana-and-state-issues.pdf

March 2018 poll conducted by Quinnipiac University Poll: https://poll.qu.edu/new-jersey/release-detail?ReleaseID=2440

April 2018 poll commissioned by New Jersey Policy Perspective and conducted by Anzalone Liszt Grove Research: https://www.njpp.org/budget/new-poll-most-new-jerseyans-want-bold-tax-reform-regardless-of-federal-tax-changes

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Mapping Who Would Pay a "Millionaires Tax"

Posted on by Brandon McKoy

The June 30 deadline for a balanced budget is fast approaching. If the New Jersey Legislature and Governor Murphy fail to reach an agreement on spending priorities and revenue, the state may shut down for the second time in as many years.

At the crux of the budget debate is Gov. Murphy’s proposal to raise the state income tax for individuals earning more than $1 million per year. The so-called “millionaires tax” would raise the tax rate on New Jersey’s top earners from 8.97% to 10.75%.

Despite voting for a “millionaires tax” five times under the Christie Administration, legislative leaders now oppose the idea, citing the oft-debunked myth of millionaire tax flight.

On Thursday, members of Patriotic Millionaires stood with New Jersey Policy Perspective and members of the Better Choices for New Jersey coalition to call on legislators to do the right thing and ensure the state’s wealthiest residents pay their fair share in taxes.

According to State of New Jersey, Department of Treasury, there are 20,422 tax filers who report an annual income of more than $1 million. This represents less than half of one percent of tax filers in the entire state. Meanwhile, the newest ALICE data by UnitedWay of Northern New Jersey reports that over 40% of New Jersey households are working poor, struggling to afford basic needs.

As New Jersey seeks to turn the page on decades of austerity budgets and short-sighted financial decisions, it is imperative that the fiscal year 2019 budget is funded fairly and not balanced on the backs of low- and middle-income taxpayers.

Use the interactive map below to see where New Jersey’s millionaires are concentrated.

Use the interactive table below to compare legislative districts.

 

DACA Recipients Contribute $59 Million Per Year in Taxes

Posted on by Erika J Nava

When undocumented youth are given a chance, they capitalize on the opportunity. This is exemplified by the state and local taxes paid by the 17,620 DACA (Deferred Action for Children) recipients living in New Jersey. According to an updated 50-state study by the Institute on Taxation and Economic Policy, providing undocumented immigrants a legal path to citizenship would significantly increase taxes paid by immigrants, strengthening New Jersey’s economy while providing stability to local communities.

The ITEP study found that New Jersey’s young immigrants eligible for DACA contribute $59 million in state and local taxes each year, the seventh highest level of all fifty states. These contributions would increase by $38 million per year – the sixth most of all states – if all of those eligible for DACA enrolled in the program. However, if DACA protections end, these state and local tax contributions will drop by $19 million per year, a 33% reduction. When laws push immigrants further to the margins of society, their economic contributions decline at a rapid rate.

Data released last September from the federal government revealed that there are 20% fewer DACA recipients living in New Jersey than had previously been reported. The drop from 22,000 to 17,620 can be attributed to some DACA recipients having their status adjusted, a percentage not qualifying for renewal, and some undocumented youth choosing not to renew as the future of DACA remains uncertain.

In September 2017, the Trump administration announced it was ending DACA. Since then, federal courts temporarily preserved the program and ordered the administration to continue accepting DACA renewals. The fate of DACA is now in the federal courts, as Congress has yet to come up with a proposal to save the program.

It is unclear if the Trump administration’s aggressive demeanor towards immigrants impacted DACA recipients from renewing their permits. What it is clear is that intimidating immigrants and creating a hostile environment for them will only further chase undocumented immigrants into the shadows of society, resulting in lost economic and societal contributions in their communities. It is now up to individual states like New Jersey to protect immigrant communities and encourage their participation in the economy.

This report serves as a reminder that contrary to popular misconception, undocumented immigrants are paying into the tax system now. And, of course, undocumented immigrants would contribute more to state and local coffers more if there was a path to citizenship.

Equal Access to Financial Aid Now Law

Posted on by Erika J Nava

Today, New Jersey officially joins 9 other states – from bright blue California to deep red Texas – in allowing undocumented students with New Jersey roots to apply for state financial aid to help secure a college degree. New Jersey becomes the second state on the east coast to enact such policy, and the second to do so since Donald Trump was elected President.

This common-sense policy will put undocumented students – and New Jersey – on the path toward greater economic prosperity while helping build stronger communities. Equal access to higher education for all students, regardless of status, enables undocumented students who graduated from New Jersey high schools to have a real shot at earning a college degree. This will help us develop a more highly-educated workforce, strengthening our economy and building a brighter future for all New Jerseyans.

With this policy, New Jersey sends a clear message that our state can mitigate the federal government’s attacks on immigrants by taking bold action that both honors our history as the golden door for immigrants and maintains our reputation as a welcoming, inclusive place. Considering the fact that more than half of new jobs will soon require a bachelor’s degree, increasing access to higher education by making it more affordable for all students – regardless of immigration status – is a critical step to ensuring the long-term strength and sustainability of our state’s economy.

For more information on equal access to financial aid, read our 2016 report, Access to Financial Aid is Essential to Give Undocumented New Jerseyans a Better Shot at a College Education: https://www.njpp.org/reports/access-to-financial-aid-is-essential-to-give-undocumented-new-jerseyans-a-better-shot-at-a-college-education

"Tax Freedom Day" Analysis is Flawed

Posted on by Sheila Reynertson

Happy “Tax Freedom Day,” New Jersey!

In April, the Tax Foundation released its annual “Tax Freedom Day” report, designed to represent the number of days into the year people must work to earn enough money to pay the average federal, state and local tax bill. According to the Tax Foundation, New Jersey is one of the last states in the nation to achieve this milestone. It is important to note that there are some serious problems not just with this report, but with the entire concept of “tax freedom.”

A healthy debate on taxes is welcomed, but not if it begins with the misconception that New Jerseyans derive no benefit whatsoever from the goods and services that government provides. And it certainly doesn’t help to frame such a complex issue around a campaign that plainly reinforces anti-tax rhetoric at the expense of appropriate levels of nuance.

Here are some important things to keep in mind about “Tax Freedom Day”:

The Idea of ‘Tax Freedom’ is Nonsensical
The Tax Foundation’s report says that people spend part of the year working for the government, and then obtain “freedom” and work the rest of the year for themselves. But the reality is that taxes pay for services that New Jerseyans use each and every day. Few New Jerseyans would feel more “free” if the tradeoff for an earlier-in-the-year “Tax Freedom Day” was paying tolls to use every road, having fewer police officers and firefighters, closed public parks, and no public schools for their kids.

The Tax Foundation’s State Estimates Are Seriously Flawed
The Tax Foundation’s proclamations of state “Tax Freedom Days” are meaningless because the report’s state-by-state estimates are flawed. They are not useful for discussing the level of taxes paid by typical households or for assessing the tax choices made by a given state’s policymakers, for at least four reasons:

  • They overstate middle-class tax levels: About two-thirds of the taxes in the Tax Foundation’s calculations are federal taxes. The amount of federal taxes paid by the residents of a state thus has a large impact on that state’s “Tax Freedom Day.” Since the Tax Foundation’s methodology substantially overstates the federal tax burden of middle-class families, the “Tax Freedom Day” figures for each state also substantially exaggerate the tax burdens of middle-class families in that state.
  • They reflect state affluence rather than state taxes: Because the federal income tax system is progressive, states with greater numbers of high-income residents – like New Jersey  – pay more federal taxes than states with fewer high-income residents. As the Tax Foundation acknowledges, “This means higher-income states celebrate Tax Freedom Day later.” Yet by trumpeting state-level “Tax Freedom Days” that differ across the states, the Tax Foundation’s presentation is likely to lead to the misimpression that state and local policies account for the differences, when that is not the case.
  • They include taxes paid in other states: The Tax Foundation uses a procedure to allocate state corporate, severance and tourism taxes that leads to further misimpressions about the impact a state’s policies have on the amount of taxes its residents face.
  • They rely heavily on old data: While the Tax Foundation uses Congressional Budget Office (CBO) data to project total federal tax collections, there is no equivalent of the CBO for state and local governments. Rather, the Tax Foundation uses its own proprietary (non-public) model to estimate taxes that will be collected during the year in tens of thousands of state and local jurisdictions around the country. This model is based in part on data that are several years old. If the estimates turn out to be even slightly wrong, the rankings are likely to be completely askew.

For more on the Tax Foundation’s report, see this Center on Budget and Policy Priorities paper: https://www.cbpp.org/research/federal-tax/tax-foundation-figures-do-not-represent-typical-households-tax-burdens-2

 

States with High Tax Rates on Millionaires Are Doing Just Fine

Posted on by Sheila Reynertson

New Jersey isn’t the only state with a proposal to raise new public revenues needed to pay for the public services and investments that help build a strong state economy. Massachusetts voters are set to vote this fall on a ballot question to fund education and transportation through a tax increase on incomes over $1 million. To counter the inevitable narrative of millionaire tax-flight incessantly pushed by opponents of higher top tax rates, Massachusetts Budget and Policy Center has released a report on the economic experiences of the eight states with the highest tax rates on high incomes including New Jersey. Their straightforward findings make a compelling case for embracing a millionaire’s tax increase here in the Garden State.

The report first argues that states can have both higher tax rates for millionaires and a high concentration of millionaires. In fact, several of the top-tax states are among those with the largest number and share of millionaires – California, New York and New Jersey in particular.

As to whether states with millionaire taxes see reduced growth in the number of millionaire tax filers – addressing the popular notion that high tax rates on the highest earners drive them away  – the report finds little to backup that assertion. In fact, these states have seen “at least as strong growth in the number of million-dollar incomes as other states” with California and New York leading the pack. These changes are more likely the result of rising incomes of existing residents than of millionaires relocating from other states.

The report also touches on a large scale study of millionaire tax filers in every county in the nation. A 2016 study found that individuals with very high incomes are less likely than others to relocate to other states. The success of these “embedded elites” often depends upon the business and social networks they have fostered over time. As Cristobal Young, Stanford scholar and co-author of the study, has noted, “Higher income earners show low migration levels because they are not searching for economic success – they’ve already found it.”

The report ends by citing the economic impact of New Jersey’s 2004 enactment of an 8.97 percent tax rate on incomes over $500,000. Opponents of a millionaire’s tax often – and incorrectly – describe the net loss of adjusted gross income since the tax increase went into effect as a blow to New Jersey’s economy. But when compared to the entire state economy, the perceived loss is less than 1 percent of the total income. The report goes on to punch more holes in the tax migration argument as we at NJPP have done repeatedly, concluding that “even in New Jersey” millionaire-tax flight has been “relatively unimportant.”

We couldn’t agree more.

It’s Tax Day: Let’s Commit to Investing in New Jersey

Posted on by Sheila Reynertson

Taxes, and the important services they help finance, are woven into almost every part of our everyday lives. Today, Tax Day, seems like a good day to share some examples of how the tax dollars we pay support a variety of things that help our communities thrive.

It is the school down the street where our kids get their start. It is the neighborhood park where we hang out after work and on weekends with our families. It’s the bike lanes our kids use to ride to school or the train we ride to commute to work.

It’s the new road that takes us out to the airport, where we head out on a business trip. It’s the tax incentives that helped a small business get started. And it’s the community college where thousands of students get educated and trained for success in their careers.

It’s the fire station in town, the 911 operator who’s always there, or the hospital where some of our kids were born. It’s the food assistance that a struggling family needs to put food on the table. It’s the Social Security benefit that retirees rely on to get by and the Medicare coverage they use to get the health care they need.

It’s so easy to be skeptical about government and the elected officials who run it, but how government shapes our tax code is a reflection of us, our values and the priorities we care about.

Sadly, new changes to the federal tax code may make it harder for New Jersey to fund important services and programs. With the state already struggling to meet its obligations, it is now facing current and future spending cuts due to the lopsided nature of the new federal tax plan which gives huge tax breaks to corporations and wealthy families.

According to a new state-by-state analysis of the 2018 tax law, the distributional impact of the new tax plan overwhelmingly benefits the country’s wealthiest families. In New Jersey, it sends 69 percent of the benefits to the top 20 percent of wage earners, and the top 1 percent – those who make $924,600 or more – receive an average tax cut of $21,700. Yet, the poorest 20 percent of New Jerseyans – those who make an average $15,800 in annual income – receive an average tax cut of just $140. Those individual tax cuts are scheduled to expire in 2025.

Now, Congressional Republicans are considering making these tax cuts permanent, claiming they would help the middle-class. However, according to an ITEP analysis, extending the temporary tax provisions in 2026 would not help the middle-class any more than the enacted tax law does in 2018. If that happens, the top 5 percent of New Jersey earners would again receive the lion’s share (68 percent) of the benefit while those in the bottom 20 percent would get an nearly invisible 19 cents a week tax break – essentially a 0 percent share of the benefit.

The implications of this law could not come at a worse time for New Jersey. The reality is that the federal tax plan is fundamentally flawed and poses a significant risk to New Jersey’s economic future. According to the latest analysis from the Center on Budget and Policy Priorities, the federal tax plan exasperates income inequality, weakens tax revenue at a time when the nation will need more to care for the aging Baby Boomer generation and introduces more tax loopholes to be taken advantage of by those with the means to do so. Furthermore, it leaves millions without health coverage with the repeal of the provision that requires individuals to purchase health insurance or pay a penalty.

All told, the new federal tax plan will lead to enormous federal deficits of about $1.5 trillion over the next ten years that are likely to lead to deep spending cuts to important public services that New Jersey families rely upon. Over a quarter of New Jersey’s budget (26.7 percent) is made up of federal grants.

New Jersey’s lawmakers should be vigilant in their long-term response to these fundamental changes by pursuing policies that both shore up the state’s depleted rainy day fund and make our tax code more equitable. They can do so by focusing on the new revenue proposals targeted toward corporations and wealthy households as proposed by both Governor Murphy and Senate President Sweeney. Taxing earnings of $1 million at a higher rate, restoring the sales tax, closing corporate loopholes and making large businesses pay their fair share; these targeted tax changes can help New Jersey make the kind of investments needed to get the state back on its feet and protect itself against harmful federal cuts down the line.

This Tax Day, let’s be honest about one thing: New Jerseyans care deeply about everyone paying their fair share. Supporting the kinds of services and programs that develop and maintain thriving communities is important to the state’s future, and making sure that everyone contributes – particularly those who have significantly benefitted from recent changes in the tax law – is foundational to securing the long-term, sustainable growth and investment that New Jersey needs.

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