A Question of Balance: Taxing Business in the 21st Century

By Mary E. Forsberg

FOREWORD

The convergence of scandals that diminished the awe in which business is sometimes held and a deep shortfall in the state budget brought about a political moment that New Jersey seized by overhauling its Corporate Business Tax system. As the report that follows describes in detail, the changes were hard fought and are by no means assured of being permanent.

But if the debate over how to tax businesses came about almost by happenstance, it is an important debate nonetheless. And it was fitting that it should take place in New Jersey because this is a state where there are so many difficult questions to be asked about how taxes should be structured. They are, as the title of this report suggests, in large measure questions of balance. What is the right mix of taxes on businesses as opposed to people? To what extent should taxes be based on the value of someone’s house or a business’s property? Does it make sense for less affluent people to pay a higher percentage of their yearly income in state and local taxes than more affluent people pay?

Not all of those questions came up in the debate on business taxes, nor are they dealt with in this report. But understanding the rationale behind taxing businesses and why the system for doing so fell into such disrepair is an important part of the overall picture. If ours is to be a society where everyone pays their fair share, we need to come to some public judgment over what “fair” means. There might never be total agreement, but neither should there be denial of the problems to be faced. What happened in New Jersey in 2002-whatever the reasons-was a healthy, vibrant process. This report explains what took place, what it means and what else should be done. It is part of New Jersey Policy Perspective’s ongoing effort to promote and inform discussion about how this state raises money so that an equitable, efficient system evolves to meet the needs of its people.

NJPP is indebted to Senior Policy Analyst Mary E. Forsberg for her work on this report. We also appreciate technical assistance we received from the Center on Budget and Policy Priorities.

– Jon Shure

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