Topic Category: Tax and Budget

A Grain of ‘SALT’: New Jersey Needs More Than Workarounds to Respond to GOP Tax Plan

Posted on by Sheila Reynertson

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

SALT ‘fixes’ would mostly help the state’s most well-off; plans to make state income tax fairer should move forward

The GOP tax plan is now law, and states are grappling with how the enormous federal tax cuts will play out for their residents. The plan delivers lopsided cuts to the wealthiest Americans and large corporations while teeing up deep and devastating budget cuts that would harm working families across New Jersey. But despite the grave threat to progress and opportunity this tax law presents, New Jersey lawmakers seem most concerned about a relatively narrow provision of the plan: the new federal limit on the deductibility of state and local taxes (SALT). Households that itemize deductions are now only allowed to deduct up to $10,000 in combined SALT when calculating their taxable income for federal taxes.

While “workarounds” are under discussion to evade the cap – including shifting the state income tax to a payroll tax[1] or attempting to treat property tax payments as charitable donations[2] – lawmakers have also voiced concern about advancing long-held plans to make the state’s income tax fairer while raising hundreds of millions of dollars for schools and property tax relief.[3]

There’s no reason not to try to design workarounds that restructure the state tax code to help New Jersey taxpayers avoid the federal cap on SALT deductions, but these workarounds should not be the primary focus of lawmakers concerned about the well-being of the state’s middle-class and working families. That’s because these workarounds would disproportionately benefit the wealthiest households in New Jersey, to make no mention of the fact that the Trump administration is unlikely to allow them to stand.

  • The wealthiest 1 percent of families (those with annual incomes over $1.1 million) would receive 54 percent of the benefit from a SALT workaround. Nearly every family in the top 1 percent – 99.9 percent of them, in fact – would benefit, with an average tax cut of $79,460 a year, or 2.5 percent of their average incomes.
  • The bottom 80 percent of families (those with annual incomes under $142,000) would receive less than 1 percent of the benefit from such a policy. Just 10 percent of these families would benefit at all, and their average tax cut would be $75 a year, or less than 0.1 percent of their average incomes.

To the extent that lawmakers ought to be considering these SALT workarounds, they should be doing so only as part of a comprehensive package responding to the federal tax plan – one that includes proposals to raise revenue from the corporations and wealthy interests who will most benefit from the federal plan. At the very least, shying away from bold tax policy – as suggested by some legislative leaders – should not be part of the equation.

The truth is New Jersey’s highest-income households – those with annual incomes over $1 million – get a windfall from the new tax plan, even with the new limit on SALT deductibility. That’s because for New Jersey’s wealthiest families, the average federal tax cuts from other changes in the law are notably larger than the average size of the impact from the loss of SALT deductibility.

Specifically, the long-term benefit of slashing the corporate rate nearly in half will overwhelmingly go to wealthy stockholders rather than the average worker.[4] Eighty percent of the value of the total stock market is concentrated at the top while fewer than half of all Americans own any stock. Further, the big tax cuts for corporations are permanent, while nearly all the smaller tax cuts and changes for individuals and families are temporary – making the overall impact of the GOP tax plan even more favorable to New Jersey’s wealthiest families than this fact sheet illustrates (since it uses 2019 impact data).

Households with incomes over $1 million – with a projected average income of $2.6 million in 2019 – will receive a combined $1.4 billion tax cut with an average tax cut of $27,300 per household, even with the SALT deduction limits factored in.

Given this windfall for the state’s wealthiest families and the state’s precarious fiscal condition there is no reason for legislative leaders to back off of long-held plans to make New Jersey’s income tax fairer and raise much-needed new revenue to invest in schools and property tax relief.

In fact, under a proposed overhaul of New Jersey’s income tax that would, in all, raise over $1 billion in new revenue while increasing taxes on only the 5 percent of highest-income families,[5] households with $1 million or more in taxable income would be paying an average of $22,000, more a year in New Jersey taxes. And under the decidedly less bold plan to raise the top tax rate to 10.75 percent on incomes over $1 million, households with $1 million or more in taxable income would be paying an average of $17,600 more a year in New Jersey taxes. Either way, these millionaire households would still come out well ahead from the combined effect of the federal tax plan and a state income tax increase.[6]

What’s more, these families at the top of New Jersey’s income brackets are already paying the lowest share of their annual average income to state and local taxes in the state (7.1 percent versus 9.1 percent for middle-income families and 10.7 percent for the lowest income quintile).[7] And they have also enjoyed over $4 billion in cumulative tax cuts since 2010, at a time when these households have reaped the overwhelming majority of any economic gains in the state.

Endnotes

[1] New York State Department of Taxation and Finance, Preliminary Report on the Federal Tax Cuts and Jobs Act, January 2018.

[2] Congressman Josh Gottheimer, Gottheimer, Murphy Offer Tax Cut Plan, January 2018.

[3] See, for example, New York Times, Democrats in High-Tax States Plot to Blunt Impact of New Tax Law, December 2017.

[4] Joint Committee on Taxation (JCT), Modeling the Distribution of Taxes on Business Income, JCX-14-13, October 2013.

[5] New Jersey Policy Perspective, Reforming New Jersey’s Income Tax Would Help Build Shared Prosperity, September 2017.

[6] Federal tax plan changes affecting individuals are modeled using ITEP’s microsimulation tax model, which generates tax estimates for a sample of representative taxpayer records in each state. For more information about the model, visit https://itep.org/itep-tax-model-simple/

[7] Institute on Taxation and Economic Policy, Who Pays: A Distributional Analysis of the Tax Systems in All Fifty States (2015 edition).

Governor Takes Important Step on Tax Subsidy Evaluation

Posted on by Jon Whiten

Gov. Murphy took an important step toward righting New Jersey’s economic-development ship with today’s executive order calling for a robust, independent evaluation of the state’s use and abuse of corporate tax breaks. As we’ve often noted, better evaluation is a critical part of comprehensive comprehensive subsidy reforms that can usher in amore responsible approach to economic development in the Garden State.

Since 2010 – and in particular since 2013 – New Jersey has seen an unprecedented surge in corporate tax subsidies, further cramping New Jersey’s ability to fund schools, transportation and other investments known to be greater drivers of job creation. The state has rapidly increased the amount of special tax breaks approved, more of these subsidies have been used to merely shift jobs around the state, and the breaks to individual corporations have become larger and larger even as the required investments from those corporations have gotten smaller and smaller.

A new direction is urgently needed, because the state can’t afford this subsidy largesse – both in terms of its direct, long-term drain on the state’s coffers and in terms of the opportunity costs created by having such a lopsided and flawed economic-development strategy.

New Jersey can’t afford to ink over $1 billion in subsidy deals every single year, or to continue approving 9-figure tax breaks to help profitable multinational corporations move their offices a few miles down the road with a new building fully paid for by the state’s taxpayers, or to continue expanding these programs without end.

New Jersey’s tax breaks must be smaller, smarter and more targeted to small, growing businesses located in places with access to public transit. We’re glad the governor is taking this essential first step to require rigorous evaluation so early in his tenure. And we look forward to working with him, his administration, members of the legislature and agency officials to retooling these subsidies and making New Jersey truly competitive in a 21st century economy.

NJPP’s reform agenda for corporate tax breaks

Better evaluation of the state’s corporate tax subsidies is one of ten key reforms proposed by NJPP in May 2017 – others include restoring spending caps on these programs, limiting the use of breaks for jobs already in the state, and restricting the ability of corporations to redeem more in tax credits than they owe in taxes. For the full report, click here: https://www.njpp.org/budget/its-time-for-new-jersey-to-rebalance-the-economic-development-scales

New Jersey’s subsidy surge, by the numbers (figures are through the EDA’s January 2018 meeting):

  • ​5: Number of years in a row (2013-2017) that New Jersey has approved more than $1 billion in tax subsidies
  • 0: Number of times an annual report evaluating the efficacy and fiscal impact of these subsidies, mandated under a 2007 law, has been produced
  • $8.4 billion: Total amount of tax breaks approved since January 2010 (a monthly rate of $87 million)
  • $1.2 billion: Total amount of tax breaks approved during the entire previous decade (Jan. 2000-Dec. 2009) (a monthly rate of $10 million)
  • $61,000: Taxpayer cost per subsidized job since January 2010 ($117,000 per “new” job)
  • $16,000: Taxpayer cost per subsidized job in the 2000s ($22,000 per “new” job)

Newark Makes Amazon Shortlist, Rejects Records Request for 'HQ2' Bid

Posted on by Jon Whiten

We’re glad to see Newark on Amazon’s short list for its new headquarters, as we’ve said all along that New Jersey’s largest city would make a prime location for the company’s HQ2 project. But we remain wary of the steep price tag for taxpayers that state and local lawmakers have already put on this project. By putting at least $5 billion, and potentially several billion dollars more, in taxpayer dollars on the table so early in the game, New Jersey has ensured that is returns will be minimized if Amazon were to ultimately choose the state.

For New Jersey’s economy to be truly competitive and strong, the state needs to get back to basics: investing in the assets that give us an edge. Whether that’s ensuring NJ Transit is reliable and affordable, strengthening the state’s public colleges and universities, or fostering smart, dense growth in walkable downtowns with more affordable places to live, these are the policy solutions New Jersey should have prioritized in its efforts to woo Amazon. Merely blowing the lid off already out-of-control corporate tax break policies comes at a hefty price tag for New Jersey’s future.

Meanwhile, the city of Newark on Friday denied a public records request for its bid aimed at luring Amazon’s second headquarters to the city, suggesting that doing so would “provide competing cities with an advantage in the competition” to secure the Amazon project. It inexplicably took the city nearly 11 weeks to reject the records request, which was filed by New Jersey Policy Perspective on October 30 of last year.

This rejection is despite the fact that an estimated $2 billion in Newark city taxpayer dollars, and at least $3 billion in state taxpayer dollars, are being offered as bait to lure Amazon’s “HQ2” in this expensive race to the bottom.

Across the country, cities and states are hiding behind a variety of legal barriers in order to keep their subsidy-fueled bids for Amazon’s new headquarters secret. In New Jersey, with so much taxpayer money at stake, lawmakers and economic-development officials should be erring on the side of transparency and open government, not legal technicalities.

Tired ‘Outmigration’ Claims Rear Their Head In Final Days of Christie Administration

Posted on by Sheila Reynertson

In a final salvo just days before leaving office, the Christie administration last week released a misleading report that cherry-picks data to “warn” the incoming Murphy administration against cleaning up New Jersey’s tax code while raising the resources required to build a stronger state economy.

The report is the latest in a long line of flawed “studies” that purport to show two things: First, that the outflow of people and income from New Jersey is at a crisis level, and, second, that this outflow is due to the state’s relatively progressive tax structure (overall, New Jersey’s state and local tax code is actually regressive, in that the poorest in the state pay the greatest share of their income to taxes, but it is less so than in many other states).

Like similar reports that came before it, this new Treasury report misuses a set of data from the Internal Revenue Services’ Statistics of Income (SOI). The author either did not take the time to read the SOI user guide – which cautions against misinterpreting the data – or deliberately ignored it. The IRS clearly states that the SOI migration data is not an accurate way to measure “migration of money.” There are multiple reasons for this, including the fact that the Adjusted Gross Income data reflects income after the taxpayer moved out of state – not before he/she left the state. Thus AGI data cannot be accurately tied to New Jersey or be considered an outflow of money. Anyone using the data this way is either woefully unaware or willingly deceitful. Either way, the report loses all credibility on this point alone.

This report is a not-so-veiled attempt to delegitimize the importance of fair taxation’s role in helping New Jersey grow and prosper by using revenue to invest in things like mass transit, higher education, clean water and public safety. Presented with the proper context, these facts tell a very different story than the one being peddled by the Office of the Chief Economist.

  • The supposed “loss” of $35 billion described in the report is a big, scary number. But in reality, it is barely a rounding error when put into context of over $6 trillion total household income generated in New Jersey from 1993 to 2016.
  • New Jersey raised an average $1 billion in new annual revenue right out of the gate when it introduced a new top income tax rate of 8.97 percent in 2004. Despite the tax flight fearmongering, no state has ever lost revenue by ensuring that the state’s wealthiest families pay their fair share. And what little revenue is lost due to those taxpayers who chose to move elsewhere is neither statistically, nor socioeconomically, significant.
  • New Jersey should not be in the business of crafting tax policy tailored to benefit the wealthiest given the fact that New Jersey’s state and local tax code is already upside down, favoring those who make over $200,000.
  • The state continues to gain millionaires and has a higher share of them than all but three states – this growth has occurred during a time that state income tax rates on wealthy households were raised twice, and has been healthy despite the Great Recession.

Signing of Amazon Tax Subsidy Bill a Fitting End to the Christie Era

Posted on by Jon Whiten

This afternoon Governor Christie signed A-5340, which clears the way for the state to authorize at least $3 billion in corporate tax breaks for a company that comes to New Jersey with at least 30,000 jobs and meets certain other requirements. The bill, designed with Amazon’s HQ2 in mind, is the latest expansion of these special business tax breaks in New Jersey in recent years.

This is a fitting but unfortunate end to the Christie era, with the governor – and an uncritical Democratic legislature – having overseen a massive and short-sighted expansion of corporate tax subsidies since January 2010. In fact, the governor has now presided over the approval of an astonishing number of 9-figure subsidy deals – 13 to be precise – and with this final legislative act, will clear the way for a colossal 10-figure deal.

Instead of coming up with a sensible plan to reverse billions of dollars of disinvestment in New Jersey’s top economic assets, like public transit or higher education or high-quality preschool, the state’s lawmakers have doubled down on trickle-down economics by clearing the way for a gigantic tax subsidy for Amazon. If New Jersey wants to build a stronger, brighter future, it needs to seriously rethink and reform its use and abuse of these special tax breaks – not just continuously expand them at every turn of the corner.

New Jersey’s subsidy surge, by the numbers (figures are up-to-date through the EDA’s December 2017 meeting – they do not include any of the deals approved this week):

  • $8.3 billion: Total amount of tax breaks approved since January 2010 (a monthly rate of $87 million)
  • $5.7 billion: Of that, the amount that’s come since December 2013, when the “Economic Opportunity Act of 2013” went into effect (a monthly rate of $117 million)

New Jersey’s 13 nine-figure subsidy deals under Christie administration (through Dec. 2017):

Panasonic (Newark): $102,408,062 February 2011

Prudential Financial (Newark): $210,828,357 June 2012

American Dream Mall (East Rutherford): $390,000,000 November 2013

Legislative overhaul goes into effect December 2013

MMC-DB Group LLC (Paterson): $105,559,214 December 2013

JP Morgan Chase (Jersey City): $224,835,000 May 2014

Sayreville Seaport (Sayreville): $223,277,590 May 2014

Holtec International (Camden): $260,000,000 July 2014

Lockheed Martin (Camden): $107,000,000 November 2014

Subaru (Camden): $117,832,868 December 2014

American Water Works (Camden): $164,187,735 June 2015

JP Morgan Chase (Jersey City): $187,781,000 July 2015

EMR Eastern (Camden): $148,589,900 September 2015

Resintech Inc. (Camden): $138,817,600 October 2016

Note #1: This does not include nine-figure deals that were closed and later abandoned before awarding any tax breaks (ie, the $261 million deal to Revel casino)

Note #2: Only one nine-figure deal preceded Christie: $164,336,000 for Goldman Sachs in Jersey City in 2000

Amazon Subsidy Bill a Big Step in the Wrong Direction

Posted on by Jon Whiten

Below is prepared testimony delivered to the Senate Budget & Appropriations Committee and the Assembly Judiciary Committee.

Let’s imagine there was a program administered by the state of New Jersey that helped about the same number of residents each year but whose cost exploded nearly 8-fold over the course of a decade. No doubt there would be outrage from the legislature, who are elected to be – in part – guardians of the state’s finances. There would be grave concern about the state’s return on its investment. There might even be public hearings, a special committee, or some independent investigation about just how this particular program got so incredibly expensive.

The thing is, we don’t have to imagine this scenario – it’s actually happening, and the legislation being considered today will only serve to make it worse.

In 2006, the state of New Jersey was able to either lure or keep about 15,000 jobs through it’s corporate tax subsidy programs – about the same number (actually, a few hundred more) than it did about a decade later, in 2015. But that’s where the similarities between those 2 years ends, and the differences here are as clear an illustration as any that New Jersey has gone way overboard on these special tax breaks.

In 2006, the state “paid” – through future tax credits – $186 million for these 15,167 jobs. In 2015, the state paid 7 and a half times as much – $1.4 billion – for the 14,385 jobs. Put another way, the cost per subsidized job shot up from about $12,000 to nearly $98,000.

As we have rigorously documented at New Jersey Policy Perspective, the state has doubled down on its nearly-exclusive use of subsidies to try to spur economic development. We just wrapped up our 5th year in a row, in fact, of approving more than $1 billion in these breaks – after 17 years of never crossing that line. The amount New Jersey has approved in those most recent 5 years ($6.7 billion) is more than double the amount ($3.0 billion) it approved the entire 17 years before.

This singular approach has ignored the state’s crucial assets that made New Jersey an economic powerhouse: location in the middle of the world’s largest consumer market, one of the nation’s most highly-educated workforces and thriving communities. Instead we have witnessed the deterioration in NJ Transit, disinvestment in higher education and declining support for our excellent public schools.

Clearly, New Jersey has gone off the rails. But it’s not just NJPP that has noticed. In fact, corporate consultants at McKinsey and Company, and national economic-development experts at the Pew Charitable Trusts and elsewhere, have noticed, and – like NJPP – called for a suite of reforms that would make the state’s use of these so-called “incentives” smarter, more responsible and accountable, and less of a long-term drag on the state’s fiscal health.

Unfortunately, this bill takes New Jersey in the exact opposite direction.

Yes, we all want to bring Amazon’s new headquarters to New Jersey. But like with any other development deal, we must ask: at what cost? Is giving one of the world’s largest corporations, with $136 billion in earnings last year, a dollar-for-dollar tax break for its investment in the state of New Jersey a fair deal to all 9 million residents? Is it a good deal?

Quite simply, it is not a good deal.

Amazon does not need $3 to $7 billion in public dollars to spur its own private investment; that much is clear by looking at the company’s earnings, and at its RFP for this project. But let’s assume for a second that it does. Why are all the other critical public investments that Amazon needs to succeed in New Jersey being ignored? Why is there not a bill in this lame duck legislature to invest $2 billion in public transit investments so Amazon’s workers can get in and out of a New Jersey city efficiently, affordably and not in their cars? Why are there not bills moving right now to invest in affordable homes, higher education, workforce development, childcare and education, or any of the other factors and assets that draw leading corporations to New Jersey? Why must we continue to put all of our economic-development eggs in this one inefficient and ineffective basket?

There is a smarter path to take if we want to return New Jersey to its days of being one of the country’s economic powerhouses. But it takes real investment in public assets. Bills like this one not only ignore that crucial part of the economic-development formula, they make it harder in the future to pony up the dollars required to pay for public services and investments. This is a damaging cycle that needs to end – and there’s no better time to start than now, by voting against this legislation.

Will NJ GOP Stand Up Against Spending Cuts?

Posted on by Jon Whiten

This op-ed appeared in the Sunday, December 24, 2017 edition of the Star-Ledger.

Last week the U.S. House of Representatives and the Senate passed a GOP tax bill that rewards profitable corporations and wealthy families while putting middle-class and low-income families across the country at risk.

All but one of New Jersey’s 14 members of Congress – including four of the state’s five Republican House members – voted against the bill. Rep. Tom MacArthur, R-3rd Dist., was the lone “yes” vote.

The fact that nearly all of New Jersey’s members of Congress had the clarity to see this GOP tax bill for what it is – an attack on New Jersey working families – is the tiny silver lining in an incredibly dark cloud for America’s future.

This tax bill is an expensive gift to the wealthy and to corporate America, wrapped up in the guise of “tax reform.” And congressional Republican leaders are already calling for spending cuts next year that will threaten working families – and they’re using high deficits, which their tax bill will make worse, as the rationale.

The GOP tax bill, once fully phased in, will disproportionately harm middle-class and lower-income New Jerseyans while rewarding the state’s wealthiest households.

* New Jersey households with incomes over $1.4 million (the top 1 percent) would receive an average $8,470 tax cut while the bulk of Garden State families (the bottom 60 percent, or those with incomes under $111,000) would see a tax hike averaging $110.

* Those families in the top 1 percent would receive 63 percent of the state’s share of the tax cut — $384.1 million in total — while the bottom 60 percent would, together, receive less than 0 percent of the tax cut, since they’d pay a total of $331 million more in taxes.

* About 1 in 4 New Jersey taxpayers would see a tax hike.

* An estimated 340,000 New Jerseyans would no longer have health insurance.

But sadly, these direct impacts from the bill aren’t even the worst of what President Donald Trump and GOP leaders have planned for us.

In fact, the tax bill is step one of congressional Republicans’ two-step tax and budget agenda that would rip the American social contract to shreds, undo decades of progress for working Americans and send the country hurtling even faster toward a new gilded age.

Here’s how this two-step agenda works: First come the tax cuts – they are tilted to the top, they are expensive and they blow up the deficit. That last point is key. Because the second step is to cut public services, programs and investments – using the deficit pressure these tax cuts cause as the rationale. GOP leaders are already out there promising to slash the already-tattered safety net and rein in so-called “entitlements” – in other words, health care, retirement security and food assistance for millions and millions of Americans.

As House Speaker Paul Ryan, R-Wis., said early this month, “We’re going to have to get back next year at entitlement reform, which is how you tackle the debt and the deficit. … Frankly, it’s the health care entitlements that are the big drivers of our debt, so we spend more time on the health care entitlements – because that’s really where the problem lies, fiscally speaking.”

In other words, this tax bill was about much more than taxes. It was – and remains – a statement of about how we shape our society and our future. How we raise money, and what we choose to spend it on, are the truest reflections of our values as a country.

This tax bill and its corresponding budget agenda are a one-two punch for New Jersey’s working families, children, seniors and people with disabilities. Calls for spending cuts to balance the budget are nothing more than thinly veiled efforts to gut programs such as Medicaid, SNAP and disability insurance that help millions of struggling New Jerseyans meet their basic needs.

We all share a responsibility to ensure that struggling families do not go hungry or become homeless. New Jersey’s entire congressional delegation – but particularly MacArthur, who failed struggling working families when he voted for the GOP tax bill – should commit now to standing against budget cuts that would further hurt everyday New Jerseyans by taking away health coverage, food assistance, housing and more from Garden State families.

Nearly All New Jersey Members of Congress Vote ‘No’ on GOP Tax Bill

Posted on by Jon Whiten

New Jersey delegation must continue to put Garden Staters first as Congress moves on deep spending cuts
Yesterday and early this morning, the House of Representatives and the U.S. Senate passed a GOP tax bill that rewards profitable corporations and wealthy families while putting middle-class and low-income families across the country at risk.

All but one of New Jersey’s 14 members of Congress – including 4 of the state’s 5 Republican House members – voted against the bill. Congressman Tom MacArthur was the lone “yes” vote.

The fact that nearly all of New Jersey’s members of Congress had the clarity to see this GOP tax bill for what it is – an attack on New Jersey working families – is the tiny silver lining in an incredibly dark cloud for America’s future.

This tax bill is an expensive gift to the wealthy and to corporate America, wrapped up in the guise of “tax reform.” And Congressional Republican leaders are already calling for spending cuts next year that will threaten working families – and they’re using high deficits, which their tax bill will make worse, as the rationale.

The tax bill, once fully phased in, will disproportionately harm middle-class and lower-income New Jerseyans while rewarding the state’s wealthiest households, according to a fact sheet we released yesterday.

  • New Jersey households with incomes over $1.4 million (the top 1 percent) would receive an average $8,470 tax cut while the bulk of Garden State families (the bottom 60 percent, or those with incomes under $111,000) would see a tax hike averaging $110.
  • Those families in the top 1 percent would receive 63 percent of the state’s share of the tax cut – $384.1 million in total – while the bottom 60 percent would, together, receive less than 0 percent of the tax cut, since they’d pay a total of $331 million more in taxes.
  • About 1 in 4 New Jersey taxpayers (26 percent) would see a tax hike.

But these direct impacts from the bill aren’t even the worst of it. In fact, the tax bill is step one of Congressional Republicans’ two-step tax and budget agenda that would rip the American social contract to shreds, undo decades of progress for working Americans and send the country hurtling even faster toward a new gilded age.

This agenda is a one-two punch for working families, children, seniors, and people with disabilities. Calls for spending cuts to balance the budget are nothing more than thinly-veiled efforts to gut programs like Medicaid, SNAP, and disability insurance that help struggling New Jerseyans meet their basic needs.

We all share a responsibility to ensure that struggling families do not go hungry or become homeless. New Jersey’s entire Congressional delegation – but particularly Congressman MacArthur, who failed struggling working families when he voted for the GOP tax bill – should commit now to standing against budget cuts that would further hurt everyday New Jerseyans by taking away health coverage, food assistance, housing, and more from Garden State families.

Failure to Act on DACA and Dream Act Would Harm New Jersey’s Tax Revenues

Posted on by Erika J Nava

On September 5, the Trump administration announced that it would end DACA (Deferred Action for Childhood Arrivals), the program for immigrants who were brought to the United States as children. DACA grants immigrant youth temporary relief from deportation and gives them authorization to work lawfully in this country. The president then “challenged” Congress to provide a fix to the problem he created—presumably with something like the Dream Act, a pathway to citizenship for immigrants who were brought to the United States as children.

So far, Congress has not moved a solution forward, and the lives of many young immigrants hang in the balance. Failure to act will harm these individuals and their families, of course, as well as the state’s economy, as NJPP’s earlier work has shown. The lack of action also has negative consequences for the state budget.

There are 53,000 young immigrants who were potentially eligible for DACA that call New Jersey home. They have attended our public schools, graduated high school and many have enrolled in our public colleges. And many are our coworkers, our neighbors and loved ones. They currently pay a total of $57 million to state and local taxes each year – an amount that’s sure to shrink if Congress fails to act.

Without the Dream Act, New Jersey can expect to lose at least $19 million in annual tax revenue. That’s the projected loss if DACA recipients stay in the state after losing work authorization, earning lower wages and becoming less likely to file income tax returns.

Of course, New Jersey would lose even more if all DACA-eligible residents were deported. In that case, the state would lose the entire $57 million that’s currently paid each year, and there would be many additional costs to businesses and communities of such a draconian measure.

On the other hand, if Congress passes a Dream Act, these young immigrants would retain or be granted work authorization and a pathway to citizenship – and New Jersey would see a boost of at least $41 million a year in state and local taxes paid. If allowed a pathway to citizenship, immigrant youth would be more likely to advance in a real career, buy a home, or start a business. At stake is $98 million in annual tax revenues, the difference between a $57 million loss and a $41 million gain.

Final GOP Tax Bill Punishes New Jersey’s Working Families

Posted on by Jon Whiten

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

Once it is fully phased in, the federal tax proposal released by conference committee on December 15 would raise taxes for the average middle-class and low-income New Jersey family while cutting taxes for wealthier families and for large corporations. At the same time, it would increase the number of New Jerseyans without health insurance by 340,000 by 2027 thanks to the repeal of the Affordable Care Act’s individual mandate,[1] and would tee up deep and devastating budget cuts that would harm working families across New Jersey.

While all income groups in New Jersey on average would see a tax reduction in 2019 under the final GOP plan, it’s important to look at the impact in the year 2027, since the bill includes both permanent provisions (the tax cuts for corporations and a tax hike on working families through a change to how inflation is measured) and temporary provisions that expire after 2025 (the rest of the bill that directly affect families and individuals). Unless otherwise noted, this fact sheet looks at the impact on New Jersey families in 2027.

New Jersey households with incomes over $1.4 million (the top 1 percent) would receive an average $8,470 tax cut while the bulk of Garden State families (the bottom 60 percent, or those with incomes under $111,000) would see a tax hike averaging $110.[2] Taken all together, those families in the top 1 percent would receive 63 percent of the state’s share of the tax cut – $384.1 million in total – while the bottom 60 percent would, together, receive less than 0 percent of the tax cut, since they’d pay a total of $331 million more in taxes under the plan.

In all, about 1 in 4 New Jersey taxpayers (26 percent) would see a tax hike under the GOP bill,[3] a slightly lower share than the nation as a whole (27 percent) and the 22nd highest of the 50 states.

The plan is a clear example of Robin Hood in reverse, as it gives the largest average tax hikes to New Jersey’s poorest families while showering the state’s very wealthiest families with the biggest tax cuts. While just 1.6 percent of the state’s wealthiest 5 percent of families would see a tax hike, 31 percent of families in the bottom 60 percent would. That share of tax hikes for middle- and lower-income families is the 15th highest of the 50 states.

The final GOP bill is more similar to the Senate-passed bill than the House-passed bill, as you can see by looking at the impact of all three plans on New Jersey.

Corporate Tax Cuts Drive GOP Tax Plan’s Impact – and its Inequities

Big tax cuts for corporations – specifically a cut in the corporate income tax from 35 percent to 21 percent – are the centerpiece of the GOP tax plan. After all, they comprise most of the parts of the final plan that are permanent, while nearly all of the smaller tax cuts and changes for individuals and families are temporary. As a result, these breaks for corporations end up driving the overall impact of the GOP tax plan once fully phased in, as well as the plan’s inequity.

That’s because slashing the top corporate tax rate by nearly half will primarily benefit owners of corporate stocks, according to Congress’ own Joint Committee on Taxation.[4] In fact, despite President Trump’s insistence that average working families will get a “$4,000 pay raise” from this tax plan, just 25 percent of the long-term benefit of a corporate tax cut will go to workers.[5]

And of that already small share, an even smaller piece will go to middle-class or low-income workers, since fewer than half of all Americans own any stock, and overall shareholder wealth is – like most of the rest of the country’s wealth – extremely concentrated at the top (the top 10 percent of Americans own about 80 percent of the value of the total stock market, according to leading economist Ed Wolff).[6]

The bulk of the benefit from the corporate rate cut – three-quarters of it, in fact, – will go to shareholders, and a good chunk of that will flow to foreign investors, who own about 35 percent of stocks in American corporations.[7]

Tax Bill is Step One of a Damaging Two-Step Tax & Budget Agenda

Unfortunately, the pain for New Jersey’s working families does not end with the direct impact of this tax bill. In fact, the tax bill is step one of Congressional Republicans’ two-step tax and budget agenda that would rip the American social contract to shreds, undo decades of progress for working Americans and send the country hurtling even faster toward a new gilded age.[8]

Here’s how this two-step agenda works. First, enact costly tax cuts now that are heavily skewed toward wealthy households and profitable corporations. Next, use the cost of those tax cuts and their negative impact on the federal deficit as a rationale to cut public services, programs and investments on which all Americans – particularly low- and moderate-income residents – rely.[9]

We don’t need to wildly guess what will be on the chopping block when GOP lawmakers get to this second step. After all, they have already outlined deep and severe budget cuts in their long-range budget plans.

For New Jersey, these budget plans have included devastating cuts to programs that expand economic opportunity for all residents, including job training, education, and economic development programs in cities and rural communities. But the proposals’ cuts would fall hardest on Garden State residents struggling in today’s economy, with reductions to programs that provide income assistance to help families get back on their feet and help nearly 900,000 New Jerseyans afford groceries through SNAP, and additional cuts to Medicaid, which provides health care to about 1.8 million New Jerseyans – including 852,000 kids.[10]

Endnotes

[1] NJPP analysis based on Congressional Budget Office estimates using weighted average for employer-based, marketplace, and Medicaid expansion coverage.

[2] Institute on Taxation and Economic Policy (ITEP) Microsimulation Tax Model, December 2017. Model includes all major components of the tax bill, including personal income tax changes, changes to deductions, corporate tax changes and estate tax changes. Full dataset and methodology available at https://itep.org/finalgop-trumpbill/

[3] This report’s key findings on the distribution of the tax plan focus on average and total tax hikes or cuts by income group. This explains why, for example, the bottom 60 percent would, on average, and, in total, pay more in taxes, even while there are individual taxpayers inside that income group who would pay less – the tax cuts they receive are just overwhelmed by the tax hikes that others in the same income group would see.

[4] Joint Committee on Taxation (JCT), Modeling the Distribution of Taxes on Business Income, JCX-14-13, October 2013.

[5] ITEP and JCT both assume that in the short run, a corporate tax cut will benefit the owners of corporate stocks alone, but in the long run (usually assumed to be ten years after enactment) a quarter of the benefits will flow to workers.

[6] National Bureau of Economic Research, Household Wealth Trends in the United States, 1962-2013: What Happened over the Great Recession?, December 2014.

[7] Tax Policy Center, Slashing Corporate Taxes: Foreign Investors Are Surprise Winners, October 2017.

[8] Center on Budget and Policy Priorities, Budget Briefs: The Republican Two-Step Fiscal Agenda, November 2017.

[9] The Washington Post, GOP eyes post-tax-cut changes to welfare, Medicare and Social Security, December 2017.

[10] New Jersey Policy Perspective, House Budget Threatens New Jersey Families, July 2017.

«« Previous Posts∞Older Posts »»