Topic Category: Tax and Budget

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.

New Analysis: State Tax Reform Would Create Jobs and Boost New Jersey's Economy

Posted on by NJPP Staff

Today, Trenton-based think tank New Jersey Policy Perspective released a new analysis conducted by REMI on the impact that its tax and revenue proposals would have on the state’s economy. NJPP’s proposals would raise more than approximately $2.4 billion, and the analysis shows that investing those funds evenly between general state services and public education would result in an estimated 35,500 new jobs, $2.9 billion increase in state economic output, and $2.4 billion increase in personal incomes for New Jerseyans.

“Deep tax cuts for the wealthy and large corporations as an economic strategy has crippled New Jersey’s ability to grow,” said Sheila Reynertson, Senior Policy Analyst at New Jersey Policy Perspective. “Investing new revenue in public services, on the other hand, helps build a strong state economy. And this model clearly demonstrates what that would look like – more jobs, more economic output and more money in the pockets of New Jerseyans.”

In State Treasurer Muoio’s testimony to the Senate Budget and Appropriations Committee last week, she asserted that even if the budget were to include no new revenues and no new spending, New Jersey would still have a deficit for fiscal year 2019. For a state that is having trouble affording its current obligations, let alone, investing in its critical assets and resources, the failure to raise new revenue would have a disastrous impact on our economy and harm workers and families everywhere.

“When policymakers fail to make the necessary investments in critical areas like transportation, education and affordable homes, we all lose out,” said Gordon MacInnes, President of New Jersey Policy Perspective. “It’s high time that we stop balancing the state budget on the backs of hard working low- and middle-income families and make the bold call for increased revenues to build New Jersey’s economic future by having wealthy households and corporations pay their fair share.”

New Analysis: State Tax Reform Would Create Jobs and Boost New Jersey’s Economy

Posted on by NJPP Staff

Today, Trenton-based think tank New Jersey Policy Perspective released a new analysis conducted by REMI on the impact that its tax and revenue proposals would have on the state’s economy. NJPP’s proposals would raise more than approximately $2.4 billion, and the analysis shows that investing those funds evenly between general state services and public education would result in an estimated 35,500 new jobs, $2.9 billion increase in state economic output, and $2.4 billion increase in personal incomes for New Jerseyans.

“Deep tax cuts for the wealthy and large corporations as an economic strategy has crippled New Jersey’s ability to grow,” said Sheila Reynertson, Senior Policy Analyst at New Jersey Policy Perspective. “Investing new revenue in public services, on the other hand, helps build a strong state economy. And this model clearly demonstrates what that would look like – more jobs, more economic output and more money in the pockets of New Jerseyans.”

In State Treasurer Muoio’s testimony to the Senate Budget and Appropriations Committee last week, she asserted that even if the budget were to include no new revenues and no new spending, New Jersey would still have a deficit for fiscal year 2019. For a state that is having trouble affording its current obligations, let alone, investing in its critical assets and resources, the failure to raise new revenue would have a disastrous impact on our economy and harm workers and families everywhere.

“When policymakers fail to make the necessary investments in critical areas like transportation, education and affordable homes, we all lose out,” said Gordon MacInnes, President of New Jersey Policy Perspective. “It’s high time that we stop balancing the state budget on the backs of hard working low- and middle-income families and make the bold call for increased revenues to build New Jersey’s economic future by having wealthy households and corporations pay their fair share.”

Fast Facts: Bold State Tax Reforms Would Boost New Jersey’s Economy, Create Jobs

Posted on by Sheila Reynertson

To read a PDF version of this report, click here.

There are many compelling reasons for New Jersey policymakers to advance a bold agenda for tax reform in 2018. They’d be making the state’s tax code fairer while raising new revenues for the state to pay for public services, help those in need and invest in the shared building blocks of a strong economy. They’d be reversing years of tax-cutting that has mostly benefited the state’s wealthiest families and made the tax code even more upside down. And last but not least, they’d be boosting the state economy and creating jobs.

In fact, enacting a bold tax reform agenda and using that new money to reinvest in New Jersey would boost the economy by $2.9 billion by 2022, increasing personal income by $2.4 billion and creating over 35,000 new jobs. (For details on the methodology, see Appendix.)

These economic boosts are based on the following policy changes and assume that all are enacted in 2018.

Revenue raisers:

  • Increasing the income tax on the wealthiest 5 percent of New Jersey households. By adding four brackets to the state’s income tax and increasing rates on these well-off households, lawmakers would raise more than $1 billion in new revenue each year.[1]
  • Restoring the sales tax to 7 percent. By reversing 2016’s third-of-a-penny cut to the state sales tax – a cut that most New Jersey families say hasn’t helped them at all[2] – lawmakers would raise about $600 million in new revenue each year.[3]
  • Closing corporate tax loopholes by enacting “combined reporting.” By following the lead of the majority of states with corporate taxation and ending the ability of multistate corporations to artificially shift profits out of New Jersey to lower- or no-tax states[4], lawmakers would level the playing field for small, local businesses and raise up to $290 million in new revenue each year.[5]
  • Restoring the estate tax for heirs inheriting estates worth more than $1 million. By returning sensible taxation of inherited wealth to New Jersey, lawmakers would raise approximately $500 million in new revenue a year and restore an essential safeguard against rapidly increasing wealth inequality.[6]

Spending:

  • The new revenues from the policy changes above would be split 50/50 between general state services (spent in the same proportion as current state spending) and public education (at both the elementary and secondary level, spent in the same proportion as current spending on public education).

Appendix: Economic Model

The employment and economic effects of tax policy changes described in this report were derived from the PI+ Version 2.1 of Regional Economic Models, Inc. (REMI), which generates realistic year-by-year estimates of the total regional effects of any specific policy initiative.

A wide range of policy variables allows the user to represent the policy to be evaluated, while the explicit structure in the model helps the user to interpret the predicted economic and demographic effects.

For more details on the PI+ Version 2.1 model, visit http://www.remi.com/model/pi/

Endnotes

[1] New Jersey Policy Perspective, Reforming New Jersey’s Income Tax Would Help Build Shared Prosperity, September 2017. https://www.njpp.org/budget/reforming-new-jerseys-income-tax-would-help-build-shared-prosperity

[2] New Jersey Policy Perspective, Poll: Most New Jerseyans Want Bold Solutions on State Taxes, November 2017. https://www.njpp.org/budget/poll-most-new-jerseyans-want-bold-solutions-on-taxes-public-investments

[3] New Jersey Office of Legislative Services, Legislative Fiscal Estimate on A-12, October 2016. http://www.njleg.state.nj.us/2016/Bills/A0500/12_E3.PDF

[4] New Jersey Policy Perspective, Nearly All of New Jersey’s Largest Employers Already Subject to ‘Combined Reporting’ in Other States, January 2016. https://www.njpp.org/budget/nearly-all-of-new-jerseys-largest-employers-already-subject-to-combined-reporting-in-other-states

[5] New Jersey Office of Legislative Services, Legislative Fiscal Estimate on S-982, March 2016. http://www.njleg.state.nj.us/2016/Bills/S1000/982_E1.HTM

[6] New Jersey Policy Perspective, Fairly and Adequately Taxing Inherited Wealth Will Fight Inequality & Provide Essential Resources for All New Jerseyans, June 2017. https://www.njpp.org/budget/fairly-and-adequately-taxing-inherited-wealth-will-fight-inequality-provide-essential-resources-for-all-new-jerseyans

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.

Op-Ed: DREAMers Need Real Tuition Equality

Posted on by Erika J Nava

This op-ed appeared in the March 25, 2018 edition of the Star-Ledger.

Our state policymakers can mitigate the federal government’s attacks on immigrants by taking actions that would honor New Jersey’s history as the golden door for immigrants and maintain our state as a welcoming, inclusive place.

One way is to help all New Jersey students attain their educational goals in the state they call home. Our Senate has that opportunity Monday with a floor vote on S-699, a bill that would allow undocumented students to access state financial aid, particularly the Deferred Action for Childhood Arrivals (DACA) recipients who already qualify for tuition equality.

In 2013, the state boosted educational and economic opportunities for New Jersey’s undocumented students by allowing those who meet certain requirements to pay in-state tuition rates at public colleges and universities. This has helped more students pursue a higher education, which will put them – and New Jersey – on a path toward greater economic opportunity.

But the absence of financial aid keeps many eligible students from completing a four-year degree. This has direct economic impact on New Jersey, which has third-highest share of jobs in the nation that require a bachelor’s degree, making it increasingly important for working-class families to send their children to college.

Undocumented students are like others from working-class families, except that their legal status disqualifies them from receiving federal financial aid and assistance from poverty relief programs. Most of the beneficiaries of DACA came to New Jersey in their parents’ arms. They graduated from our high schools, worked to help their family make ends meet, became vital members of our communities, and served in our military.

There are about 74,000 undocumented immigrants who came to the U.S. before the age of 18, have lived at least four continuous years in the United States, and graduated from high school or are currently enrolled in a secondary school.

They’ve helped grow our economy and made New Jersey, which has the third-largest share of immigrants in the U.S., a more productive place to live. To deny them access to affordable education is to send our state into the future with one arm tied behind our backs.

Consider a young woman named Adriana, who is a member of Make the Road NJ in Passaic: After three years as a part-time student, she was forced to drop out of Bergen Community College because the ancillary costs of full-time education are unmanageable. These days, she works at the mall. Adriana has the potential to finish school but is shut out of federal and state aid programs, even if her family pays taxes.

These students should be given the opportunity to pursue higher education regardless if the federal government ultimately follows through with its threat to end DACA completely. We all benefit from having a more educated population and we should not be the state that blocks the passion of DREAMers for higher education. Lest anyone forget: We have told them since they were children that there is no better way to succeed in America than to graduate from college.

New Jersey’s undocumented students are part of our community. Parents in undocumented families, like the rest of us, work hard and pay taxes – at a higher effective tax rate than the state’s wealthiest one percent – just to give their kids a better shot at success than they themselves had.

And all New Jersey students who meet the educational requirements and prove their financial need should be able to access the same programs as their classmates regardless of their immigration status.

By seeking access to state financial aid for college, these families are not asking to cut to the front of the line. They are simply asking for a chance to stand in line with the rest of their classmates and make New Jersey better.

Op-Ed: Tax Law Requires More Than 'SALT Cap' Workarounds

Posted on by Gordon MacInnes

This op-ed appeared in the March 14, 2018 edition of the Bergen Record

Recently, you might have noticed that your take-home pay bumped up slightly, which for most of us was in the “pleasant-surprise” category. Enjoy it while you can, but before painting the town red, you should know that next year’s news won’t be so good.

There’s a reason that the Republican federal tax law was enacted without a single public hearing or time for observers to evaluate the 700-page bill: it’s really a sneaky way to reassure only the wealthiest Americans that Uncle Sam is looking out for their interests by slashing corporate tax rates (a move that disproportionately boosts the bank accounts of those at the top), dramatically cutting the estate tax and reducing their annual federal tax rates. The new law opens doors to even greater concentration of wealth, and – because it’s recklessly financed by running up the federal deficit – will very likely be tied to deep and devastating cuts to a wide range of public services and investments that working Americans rely on.

If you live in a high-wealth and high-tax state like New Jersey, the news gets worse. For the first time in 100 years, taxpayers may no longer deduct their full state and local taxes (“SALT” for short) from the income on which federal taxes are owed. The deductible ceiling is set at $10,000, so if you pay more than that with property and income taxes combined, your taxable income will increase by a bit.

As a result, many lawmakers have focused their attention on “workarounds” — proposals to essentially evade this new cap on SALT deductions. Rep. Josh Gottheimer and Gov. Phil Murphy have proposed setting up municipal charitable funds so that taxpayers can make charitable contributions to replace most of their municipal, county and school tax bills. Their plan faces a host of technical, political and legal challenges that make the odds of success too long to bank on.

There’s another problem with the charitable contribution proposal and other SALT cap workarounds: those who stand to benefit the most from it are already doing quite well, thank you. In fact, a total lifting of the SALT cap would give 54 percent of its benefits to New Jersey’s wealthiest 1 percent of families, those with incomes of over $1.1 million. On average, each of those families would get a tax cut of $79,460 (a cut that exceeds the median New Jersey family income!).

What about the rest of us? The bottom 80 percent of New Jersey families – those with incomes under $142,000 — would receive less than 1 percent of the benefits if the plan were adopted. Nine out of ten of these families would see not a penny; and the average tax cut for the lucky 10 percent would be $75 a year. That’s $1.44 a week!

In fact, for all the attention in New Jersey on the SALT deduction cap, there is widespread misinformation about what it really means for most families. Yes, a greater share of New Jerseyans will be affected by this new cap than in most other states. And yes, some of them are solidly middle-class, thanks to the state’s high property values and correspondingly high property taxes. But New Jersey’s middle-class families whose SALT payments exceed the new $10,000 deduction cap, pay property and state taxes that only modestly exceed the cap.

The GOP tax law opens up other opportunities that should be given top priority by New Jersey’s political leaders. The state is a deplorable financial condition, ranking in the bottom fifth of states for job creation, worker income and economic activity since the end of the Great Recession. The list of neglected or ignored services and assets is lengthy. Consider such woeful facts like NJ Transit’s declining performance, going from the best-performing commuter railroad in the U.S. ten years ago to the bottom. State financing of our public colleges and universities operating costs has declined by 25 percent over the last eight years, driving up tuition and student debt. And then there’s slashed property tax relief and declining aid to public schools.

In short, the GOP tax law opens up immediate opportunities to invest in the state’s critical assets. As noted, the GOP plan favors the top 1 percent, meaning that New Jersey could require the wealthiest families to return a modest share of their bounty for the benefit of them and all New Jerseyans. Federal corporate tax rates have dropped 40 percent, which opens the opportunity for corporate citizens to help all of us by paying a slightly higher state tax to improve schools and public colleges. And New Jersey must prepare for threatened cuts to federal programs that aid poor, working and middle-class families.

New Jersey has a poor record of investing in its enviable assets like location, a highly-trained work force, high performing public schools and the nation’s 3rd highest percentage of striving immigrants. To reverse that trajectory will require sensible, bold actions to not dawdle, but exploit the openings of a one-sided federal tax “reform.”

Op-Ed: Tax Law Requires More Than ‘SALT Cap’ Workarounds

Posted on by Gordon MacInnes

This op-ed appeared in the March 14, 2018 edition of the Bergen Record

Recently, you might have noticed that your take-home pay bumped up slightly, which for most of us was in the “pleasant-surprise” category. Enjoy it while you can, but before painting the town red, you should know that next year’s news won’t be so good.

There’s a reason that the Republican federal tax law was enacted without a single public hearing or time for observers to evaluate the 700-page bill: it’s really a sneaky way to reassure only the wealthiest Americans that Uncle Sam is looking out for their interests by slashing corporate tax rates (a move that disproportionately boosts the bank accounts of those at the top), dramatically cutting the estate tax and reducing their annual federal tax rates. The new law opens doors to even greater concentration of wealth, and – because it’s recklessly financed by running up the federal deficit – will very likely be tied to deep and devastating cuts to a wide range of public services and investments that working Americans rely on.

If you live in a high-wealth and high-tax state like New Jersey, the news gets worse. For the first time in 100 years, taxpayers may no longer deduct their full state and local taxes (“SALT” for short) from the income on which federal taxes are owed. The deductible ceiling is set at $10,000, so if you pay more than that with property and income taxes combined, your taxable income will increase by a bit.

As a result, many lawmakers have focused their attention on “workarounds” — proposals to essentially evade this new cap on SALT deductions. Rep. Josh Gottheimer and Gov. Phil Murphy have proposed setting up municipal charitable funds so that taxpayers can make charitable contributions to replace most of their municipal, county and school tax bills. Their plan faces a host of technical, political and legal challenges that make the odds of success too long to bank on.

There’s another problem with the charitable contribution proposal and other SALT cap workarounds: those who stand to benefit the most from it are already doing quite well, thank you. In fact, a total lifting of the SALT cap would give 54 percent of its benefits to New Jersey’s wealthiest 1 percent of families, those with incomes of over $1.1 million. On average, each of those families would get a tax cut of $79,460 (a cut that exceeds the median New Jersey family income!).

What about the rest of us? The bottom 80 percent of New Jersey families – those with incomes under $142,000 — would receive less than 1 percent of the benefits if the plan were adopted. Nine out of ten of these families would see not a penny; and the average tax cut for the lucky 10 percent would be $75 a year. That’s $1.44 a week!

In fact, for all the attention in New Jersey on the SALT deduction cap, there is widespread misinformation about what it really means for most families. Yes, a greater share of New Jerseyans will be affected by this new cap than in most other states. And yes, some of them are solidly middle-class, thanks to the state’s high property values and correspondingly high property taxes. But New Jersey’s middle-class families whose SALT payments exceed the new $10,000 deduction cap, pay property and state taxes that only modestly exceed the cap.

The GOP tax law opens up other opportunities that should be given top priority by New Jersey’s political leaders. The state is a deplorable financial condition, ranking in the bottom fifth of states for job creation, worker income and economic activity since the end of the Great Recession. The list of neglected or ignored services and assets is lengthy. Consider such woeful facts like NJ Transit’s declining performance, going from the best-performing commuter railroad in the U.S. ten years ago to the bottom. State financing of our public colleges and universities operating costs has declined by 25 percent over the last eight years, driving up tuition and student debt. And then there’s slashed property tax relief and declining aid to public schools.

In short, the GOP tax law opens up immediate opportunities to invest in the state’s critical assets. As noted, the GOP plan favors the top 1 percent, meaning that New Jersey could require the wealthiest families to return a modest share of their bounty for the benefit of them and all New Jerseyans. Federal corporate tax rates have dropped 40 percent, which opens the opportunity for corporate citizens to help all of us by paying a slightly higher state tax to improve schools and public colleges. And New Jersey must prepare for threatened cuts to federal programs that aid poor, working and middle-class families.

New Jersey has a poor record of investing in its enviable assets like location, a highly-trained work force, high performing public schools and the nation’s 3rd highest percentage of striving immigrants. To reverse that trajectory will require sensible, bold actions to not dawdle, but exploit the openings of a one-sided federal tax “reform.”

Deliberate Disinvestment Has Been A Disaster for New Jersey

Posted on by Sheila Reynertson

Last week Governor Murphy reiterated his support for a millionaire’s tax on New Jersey’s highest earners to help pay for some of New Jersey’s most pressing needs – property tax relief and reinvesting in K-12 education.

Senate President Stephen Sweeney, who posted a millionaire’s tax 5 times during Christie’s tenure and put it on the top of his list of legislative priorities as recently as November, now views a tax on New Jersey’s highest earners as only an “absolute last resort” and instead is pushing for a surcharge on large corporations to help fund education.

Despite some quibbling, it is refreshing to hear New Jersey most powerful politicians talking about cleaning up the state’s tax code and raising new revenues that the state desperately needs. But frankly, this should not be an “either/or” choice: New Jersey needs both. To really get the state back on track, profitable corporations and top earners in the state must pay their fair share.

Yet Assembly Speaker Craig Coughlin has taken a different tack altogether, stating that “our top priority should be to reduce spending, better manage our existing resources, and fully examine all revenues from existing programs before we raise taxes on anyone.”

But we’ve seen this movie before. And it didn’t have a happy ending for New Jersey’s economy or for its middle-class working families.  

Governor Christie boasted of his deep cuts to what he liked to call “discretionary spending” – in other words, state investments in higher education, direct property tax relief and other middle-class priorities. As he presented his final budget, he said those investments were $2 billion less than in 2008, creating what he dubbed “a new baseline for government.”

That baseline – reinforced by tax cuts that drained critical dollars from New Jersey’s coffers – led the state to suffer 11 credit downgrades from three major credit-rating companies during the Christie administration. In other words, this “new baseline” didn’t match the state’s needs.

That baseline means that over 10,000 state government jobs – and over 100 public programs – have disappeared, dragging down the overall economy and making it harder for the public servants who remained to serve the public.

That baseline means deliberate disinvestment in New Jersey families. It means that the state’s public schools are underfunded; that more children can’t thrive in high-quality Pre-K classrooms; that parents and college students are taking on more debt as state support of higher education drops; that seniors, the disabled and low- and middle-income homeowners dependent on dwindling property tax relief are left out to dry; that commuters are paying 30 percent more for tickets on a public transit system that has become unreliable and, in some cases, downright dangerous.

Here’s the reality: New Jersey has already reduced spending – and reduced it beyond a sustainable level, reduced it to the point where it’s putting our future at risk. The trickle-down agenda of tax cuts and spending cuts has been the state’s chief economic policy for the past eight years. Legislative leaders owe it to those who have been paying for those cuts to embrace a better plan. First admit that there’s no more room to cut spending without even further harming families. Then make a commitment toward raising new revenue, and doing so in an equitable way.

Already, the tired and false claim that higher taxes will drive millionaires and successful businesses out of New Jersey has come roaring back. This time, though, legislators should consider what it is about New Jersey that helps foster a growing class of millionaires in the first place. It is undeniable that the public assets that make this great state hum – mass transit to major economic city centers, high quality education, an educated workforce – are key ingredients of prosperity. In fact, New Jersey now has the second most millionaires per capita in the country with just about 1 in 12 households having $1 million or more in investable assets. That’s up from third place a year ago.

Public assets cost money, and they work best when we all chip in and pay our fair share. That can only happen if New Jersey takes critical, bold steps to make its tax code fairer and its finances more stable with new revenues.  

Investing in New Jersey’s Future Will Require New Revenues

Posted on by Gordon MacInnes

Critical investments in public assets won’t happen without more public income

To read a PDF version of this report, click here.

To begin rebuilding a strong state economy, New Jersey’s governor and legislators must stabilize the state’s finances and put the Garden State back on track to invest in its competitive assets, which have been largely neglected during a 25-year slide into financial peril. New investments require new revenue that should be tied to much-needed public services and essential investments.

This is the most pressing – and most contentious – of the many problems facing the state’s new governor and legislature. And it can’t be solved by more can kicking, the threat of more spending cuts or misreading the impact of President Trump’s tax revisions. A robust plan for new funding streams is required.

Crucial Public Investments Have Deteriorated

A quarter century of tax cutting, false promises and high-risk financial shenanigans have degraded New Jersey’s economic assets and imperiled its future. How bad has it gotten? Here’s a quick look.

School, municipal and county aid has been sharply reduced after adjusting for inflation, resulting in a steady increase in property taxes

The combination of reduced state aid, steady inflation and property tax caps have led to budget cuts, layoffs of public employees, tacked-on bills for sports and sewers, borrowing to cover annual costs and other financially imprudent – even dangerous – actions by towns, counties and school districts.

Direct property tax relief was slashed during the recession and has not been restored

In 2008, the state budget included $2.8 billion in direct funding to reduce property taxes for eligible aged, disabled or working-class New Jerseyans.[1] By 2012, this had been slashed by 57 percent to just over $1.2 billion, where it has pretty much remained for 7 years[2].

Residential property taxes continue to be the highest in the nation

What politician doesn’t promise “lower property taxes,” almost always without specifying how or what will lower them? Residential property taxes of more than $22.5 billion match the total collected by the state from income and sales taxes, $15 billion of which is dedicated to property tax relief.[3] If even a millionaire’s tax increase affecting only 20,000 of 4 million households is beyond consideration, there is no prospect of significantly reducing property taxes.

New Jersey has shifted the cost of public higher education to students and their families

New Jersey’s public colleges and universities have seen a steady decline of 24 percent since 2010 in state operating aid, when adjusted for inflation.[4] This helps explain the rapidly increasing costs of tuitions and fees at these institutions, and the accompanying growth in student debt. If state support for the operating costs of 4-year public colleges had just kept up with inflation in those costs beginning in 2010, instead of providing $703 million for operating costs for the 2016-17 academic year, the state would have put up just over $1 billion, a gap of 48 percent.[5] And during the same time, the number of students – full-time, part-time and graduate – grew by 10 percent.[6] At county colleges, operating support dropped 18 percent between 2009 and 2017.[7]

NJ Transit – once the national public transit model – is now the nation’s underperformer

State disinvestment in NJ Transit has led the agency to turn more frequently to riders, who now pay the nation’s highest fares for the 2nd worst on-time performance[8][9]. Location is New Jersey’s greatest asset, but if commuter trains to New York and Newark continue their downward slide, the prospects for attracting young families to towns like Ridgewood, Princeton, Summit, Red Bank, Bernardsville and Maplewood with their lively downtowns, excellent public schools and parks are badly diminished.

The state’s budget is unbalanced and its reserve fund is depleted

Next year’s budget begins with having to replace at least $700 million in one-time revenues in this year’s budget and a raid of at least $200 million on a very small reserve to fund Gov. Christie’s opioid treatment campaign. How small is that reserve? New Jersey currently has the third lowest level in the nation – at just 1.3 percent of spending, or enough to fund 4.6 days of operations. The median of the 50 states is 8 percent, enough to fund nearly a month (29.3 days) of operations. And the state’s more permanent “rainy day fund” has been at zero since 2009.[10]

Lawmakers have put New Jersey on the hook for billions in future tax breaks

As the Great Recession receded, New Jersey opted to run the table with a massive set of tax subsidies and little else. Eight years later, the state is in the bottom quintile of states when it comes to economic activity, new job creation and public and private investment. The 2013 Economic Opportunity Act needs to be sharply revised to minimize the harm that this reckless expansion of $5 billion in tax breaks will have over the next few decades and redirect public investments to tried-and-true methods of economic development.

The state is currently unable to fund promised public employee pensions

Since 1994, governors and legislators of both parties have hidden behind the complexity of actuarial calculations to promise pensions and health benefits that they did not bother to fund. New Jersey was the first state to confess to “fraudulent misrepresentation” to the Securities and Exchange Commission for increasing pension benefits by 9 percent financed by funds that didn’t exist. The total owed now exceeds $125 billion ($93 billion for pensions and $34 billion for retiree health benefits). This year alone, the state is $2.5 billion short of the required contribution.[11]

The Big Question: If New Jersey can’t finance the pensions it owes public employees or keep its commuter trains running or even discuss taxing a few thousand millionaires, how can it invest in New Jersey’s crucial assets like great public schools, the nation’s highest-quality preschool program, public colleges and universities or the nation’s 3rd largest public transit system?

Tax Reforms Can Bolster New Jersey’s Economic Future

By cleaning up the state tax code, reversing some of the most ill-advised tax cuts of recent years and asking the state’s wealthiest households to pitch in a bit more, New Jersey could raise over $2.5 billion in new revenues that could be invested in the state’s long-neglected assets, putting the state back on the right track.

Like all investments, public investments take time – and dollars – to bear fruit. Policymakers must begin sowing the seeds for restoring New Jersey’s economic prospects and achieving widely shared prosperity now – and they must do so by raising new revenue to make these critical investments. They should start by restoring the tax cuts that Gov. Christie held hostage to signing the overdue financing of the Transportation Trust Fund in 2016. 

Return the sales tax to 7 percent and modernize its application ($700 million+)

Most New Jerseyans haven’t been helped by the sales tax reduction by a third of a penny since 2016 (from 7 percent to 6.625 percent).[12] But the loss to the state of $600 million each year counts. For example, that’s near the amount that must be found next year to keep up with the 10-year schedule to fully fund pensions. Moreover, the economy has become more service than goods-oriented, yet the sales tax hasn’t kept up with the times. Expanding the sales tax to more services – such as accounting and interior design – would help modernize the sales tax without punishing low- and moderate-income families.[13]

Restore the estate tax at a threshold of $1 million ($400-600 million)

Under New Jersey’s recently-eliminated estate tax, only about 5 percent of the state’s 70,000 deaths each year triggered an estate tax payment. The new federal tax law doubles the floor on federal estate taxation to $24 million for a wife-husband estate, meaning that most of New Jersey’s wealthy families have nothing to worry about. Restoring the state estate tax with a threshold of $1 million would capture most of the dollars but very few of the estates that formerly were assessed. (In fact, it would recoup 93 percent of the tax revenue the state is now losing, capturing an estimated $5.6 billion over the next decade.[14]) On top of that, it would be sensible to increase the tax rate to capture some of the windfall the wealthiest heirs will get from the federal law.

Make the income tax more equitable by increasing rates on the wealthiest 5 percent of households ($1 billion+)

Increasing income tax rates on New Jersey’s wealthiest families households by creating 4 new income tax brackets and raising the top tax rate (on income over $2.5 million) to 11 percent would make the state’s tax code fairer. This tax increase – which is supported by 3 in 4 New Jersey voters – would be paid almost exclusively by New Jersey’s ultra-wealthy, with the top 1 percent – households with average annual incomes of $3 million – paying 85 percent of the new tax.[15] And even after this change, the wealthiest New Jerseyans would still be paying much less of their incomes on state and local taxes than the bottom 80 percent.

At the very least, policymakers should increase the income tax rate on earnings over $1 million, the so-called “millionaire’s tax” that would raise $600 million or more. The withdrawal of support by the Senate President puts even this modest revenue increase in peril, but does not dilute the fairness or value of it. The argument that its renewal would somehow lead to a loss of revenue defies simple arithmetic and common sense. The number of households with over $1 million in income filing taxes in New Jersey increased from 13,300 in 2005 to 20,600 by 2015, a 55 percent increase, which hardly represents the “exodus” so frequently asserted.[16] And the percentage of households reporting incomes of $500,000 and up increased five-fold in the years 1994 to 2014 (from .4 of 1% to 2%).

Close corporate tax loopholes used by multi-state corporations ($110m to $290m)

“Combined reporting” requires multi-state corporations to file a tax return that captures its business activities in all states in which they conduct business. This approach, which is now in force in 25 of the 45 states with a corporate business tax including such classic “red” states as Texas, Utah and Montana, prevents corporations from transferring profits to states without a business tax or ones with a very low tax rate. Most of New Jersey’s largest corporations are already honoring combined reporting requirements in other states without dire consequences.[17]

Consider recouping a piece of the windfall corporations will receive from the federal tax changes ($500m)

The recently enacted federal tax “reform” is friendliest to corporations, which have been granted a permanent and significant tax cut. It’s sensible for New Jersey to offset some of this windfall by modestly raising the corporate tax rate and investing the new revenue in public assets and services that can boost the state’s economy and help working families get ahead. An increase of 2.5 percent from the current rate of 9 percent would produce approximately $500 million in additional revenues without diluting strongly the federal tax windfall.

These are tax changes that need attention and deliberation if New Jersey is to return to a competitive economic position. Without raising these revenues to restore and expand public investments, New Jersey will continue to be in the bottom 20 percent of states for economic activity and job growth.

Next Tuesday, Gov. Murphy will present his first budget. If it does not call for significant new revenues, then New Jersey is fated to continue on its downward slide of a quarter century without the means to invest in the state’s neglected assets.

Endnotes

[1] New Jersey Office of Management and Budget, Fiscal 2009 Budget in Brief, February 2008. http://www.nj.gov/treasury/omb/publications/09bib/BIB.pdf

[2] New Jersey Office of Management and Budget, The Governor’s FY 2013 Budget Summary, February 2012. http://www.nj.gov/treasury/omb/publications/13bib/BIB.pdf

[3] New Jersey Department of Community Affairs, Property Tax Tables, 2017, http://www.state.nj.us/dca/divisions/dlgs/resources/property_docs/17_data/17taxes.xls

[4] Center on Budget and Policy Priorities, A Lost Decade in Higher Education Funding State Cuts Have Driven Up Tuition and Reduced Quality, August 2017. https://www.cbpp.org/research/a-lost-decade-in-higher-education-funding-state-cuts-have-driven-up-tuition-and-reduced

[5] NJPP analysis of Commonfund Higher Education Price Index, 2017 Update. Available at https://www.commonfund.org/commonfund-institute/higher-education-price-index-hepi/

[6] NJPP analysis of New Jersey Office of the Secretary of Higher Education enrollment statistics. Available at http://www.state.nj.us/highereducation/statistics/index.shtml#ENR

[7] Ibid 5

[8] The Star-Ledger, Boston’s stuck! Beantown rail fleet tops NJ Transit as least reliable, October 2017. http://www.nj.com/traffic/index.ssf/2017/10/nj_transit_trains_are_no_longer_the_least_reliable_in_us_but_its_close.html

[9] The Star-Ledger, Do N.J. rail commuters pay the highest fares in America?, May 2016. http://www.nj.com/traffic/index.ssf/2016/05/nj_rail_riders_still_pay_the_highest_fares_in_america_or_dont_they.html

[10] The Pew Charitable Trusts, State Rainy Day Funds Grow Even as Total Balances Lag, Updated January 2018. http://www.pewtrusts.org/en/multimedia/data-visualizations/2014/fiscal-50#ind5

[11] “State of New Jersey, Debt Report, Fiscal Year 2016, March 2017. http://www.nj.gov/treasury/public_finance/pdf/DebtReportFY2016.pdf

[12] New Jersey Policy Perspective, Poll: Most New Jerseyans Want Bold Solutions on State Taxes, November 2017. https://www.njpp.org/budget/poll-most-new-jerseyans-want-bold-solutions-on-taxes-public-investments

[13] New Jersey Policy Perspective, Modernizing New Jersey’s Sales Tax Will Level the Playing Field & Help the Economy Thrive, February 2018. https://www.njpp.org/budget/modernizing-new-jerseys-sales-tax-will-level-the-playing-field-help-the-economy-thrive

[14] New Jersey Policy Perspective, Fairly and Adequately Taxing Inherited Wealth Will Fight Inequality & Provide Essential Resources for All New Jerseyans, June 2017. https://www.njpp.org/budget/fairly-and-adequately-taxing-inherited-wealth-will-fight-inequality-provide-essential-resources-for-all-new-jerseyans

[15] New Jersey Policy Perspective, Reforming New Jersey’s Income Tax Would Help Build Shared Prosperity, September 2017. https://www.njpp.org/budget/reforming-new-jerseys-income-tax-would-help-build-shared-prosperity

[16] NJPP analysis of New Jersey Treasury Department Statistics on Income data, 2006 and 2017.

[17] New Jersey Policy Perspective, Nearly All of New Jersey’s Largest Employers Already Subject to ‘Combined Reporting’ in Other States, January 2016. https://www.njpp.org/budget/nearly-all-of-new-jerseys-largest-employers-already-subject-to-combined-reporting-in-other-states

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