Topic Category: Tax and Budget

Income Growth Doesn’t Stop Tired ‘Outmigration’ Claims

Posted on by Sheila Reynertson

outmigration-slice-01New Jersey’s overall reported income grew by $19 billion last year, adding up to an impressive $320 billion for 2015 as a whole, according to the latest statistics released this month by the Internal Revenue Service.

But that fact didn’t stop business lobbyists pointing to another, much less significant number – the supposed “loss” of $2.4 billion to “outmigration,” which accounts for less than 1 percent of total household income – and insisting that it is an economic crisis that must be addressed by cutting taxes, almost exclusively for the state’s most well-off and for successful corporations.

But updating numbers to inflate a bogus storyline of a massive “exodus” of wealth and people from New Jersey doesn’t make it a more accurate portrayal. When these numbers are put into context, the story becomes highly questionable.

First, as noted above, the amount supposedly lost to “outmigration” is barely a rounding error. Same holds true for the past 11 years. The supposed “loss” of $20.7 billion in income loses its wow factor when compared to the $3.1 trillion in total household income that was generated in New Jersey between 2004 and 2015.

Even more importantly, just because a person moves from one state to another doesn’t mean the state they leave loses all their income; this interpretation has been called out by tax experts as a gross misreading of income data.

That’s because the income reported by filers that have moved out of state has no connection to the departure state. It actually refers to how much money they earned after they moved to another state. Further, when someone relocates to another state for a new job, it is likely the position they left behind will still exist – just as the job they take existed before their arrival. Thus the income in the departure state is likely to remain.

And on a macroeconomic level, “migration of money” refers to what economists call capital mobility, which is not to be confused with labor mobility. They are distinct phenomenons but because capital mobility figures are harder to come by, commentators commonly site labor or population migration figures instead. Misinformation of this kind only creates confusion and does nothing to address New Jersey’s real challenges or help the state’s economic future.

As noted in our June report, very few Americans leave their home state every year and when they do the most common reasons for relocating have more to do with job opportunities and family obligations than fleeing high taxes. Study after study has debunked the tax migration myth, and the latest IRS migration data verifies what we already know to be true here in New Jersey.

If high tax rates explain New Jersey’s “outmigration” then the “tax flight” fear-mongers should explain why so many New Jerseyans select states with similar tax levels like New York, California and Maryland. In fact, much like the past decade more filers from New York moved into New Jersey (23,156) in 2015 than left New Jersey for New York (19,562). And every time we hear about residents fleeing for Pennsylvania (11,846 in 2015) there is always radio silence about the thousands of Pennsylvania households moving into New Jersey (9,395 in 2015). That means about 8 in 10 of New Jerseyans were replaced by Pennsylvania households moving to New Jersey last year – a pattern has been consistent for at least 12 years.

There is, quite simply, much more to the story. New Jersey’s population is actually growing – in large part thanks to births and immigrants – and with that growth comes increasing overall household income. It may be growing slower than our neighboring states (after all, we are already the most densely populated state in the nation) but the assertion that our economy is circling the drain because people are fleeing the Garden State and producing a net loss in state income has no place in any serious economic policy discussion.

EITC Expansion Would Provide a Crucial Boost to Hundreds of Thousands of New Jerseyans

Posted on by Brandon McKoy

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

The Earned Income Tax Credit – or EITC – is a critical tool that improves the lives of working families across New Jersey and the entire country. But it falls short in boosting incomes for low-wage working adults who aren’t raising children, because they are largely excluded from the credit. As a result, working adults without children are the lone group of Americans that the federal tax code taxes into – or deeper into – poverty.

Expanding the EITC for low-income workers without dependent children would raise their incomes and help offset the impact of other taxes they pay.[1] And in a high-cost state like New Jersey, which leads the nation in the share of 18 to 34 year olds living at home,[2] this EITC expansion would help promote greater economic mobility for young workers, which in turn would help boost the economy.

who-benefits-eitc-without-kids-01Thankfully, national leaders from both political parties agree that these workers shouldn’t be taxed into economic hardship, and they have plans to address it. President Obama and House Speaker Paul Ryan have put forth nearly identical proposals that would start a course correction by lowering the eligibility age for childless workers’ EITC to 21 from 25, and raising the maximum federal credit to roughly $1,000 from $506. This plan would help approximately 343,000 New Jersey workers, including 101,000 workers between the ages of 21 and 24 who would be eligible for the credit for the first time.[3]

A separate plan proposed by Senate Finance Committee member Sherrod Brown and House Ways and Means Committee member Richard Neal is even more robust and would expand the credit for 425,000 New Jersey workers, including 122,000 workers between the ages of 21 and 24 who would be eligible for the credit for the first time. Under this plan, the age for eligibility would be lowered to 21 and the maximum credit would be raised to about $1,400.

More recently, Senators Cory Booker and Tammy Baldwin introduced their own plan that it is the most ambitious of the bunch. Just like the others, this plan would lower the age for eligibility to 21, but it would increase the maximum credit to a little over $1,500 as well as widen the income range at which workers are eligible to receive the maximum credit. Additionally, this plan would mirror the Obama proposal by extending eligibility to workers aged 65-66. Under this plan, 504,000 New Jersey workers would be helped, including at least 122,000 workers between the ages of 21 and 24 who would be eligible for the credit for the first time.[4]

Starting in tax year 2016, a qualifying New Jersey worker without children can receive up to $506 for the federal EITC and up to $177 for the New Jersey EITC.[5] The existence of a strong state EITC that piggybacks off the federal credit ensures that low-wage working New Jerseyans would receive an additional bang for the buck with any federal expansion.

eitc-without-kids-max-credit-01

The benefits of extending the EITC to childless workers go beyond helping low-income individuals and families afford more of their day-to-day needs. Decades of research on the EITC has shown improvements in health outcomes and increased employment for EITC recipients, and recent studies indicate that this expansion for workers not raising children could reduce crime and increase public safety.[6]

Just as research by the federal government projects that increasing the minimum wage to $12 by 2020 would reduce crime by 3 to 5 percent and yield national public savings of $8 billion to $17 billion,[7] recent studies have shown that extending the EITC to workers without dependent children would have similar effects. Implementing this policy would boost incomes for workers with criminal records as they take steps to re-enter the workforce, helping them get on their feet and reducing the likelihood that they will commit further crimes. Expanding the EITC could create an estimated national societal benefit of $1.7 billion to $3.3 billion by decreasing criminal offenses 0.5 percent to 1 percent each year, according to the Center for American Progress.[8]

Extending the EITC to younger workers with no children would have a particularly significant impact today. Across the nation, fewer young adults are even entering the labor force; labor-force participation among childless young adults with a high school education or less has plummeted by 12.5 percent in less than two decades – currently 3 of every 10 of these young adults aren’t in the labor force.[9]

And in New Jersey, nearly half of young adults between 18 and 34 years old live at home with their parents – more than in any other state – thanks to few job opportunities, low wages and the high cost of housing in the Garden State.[10]

Expanding the EITC would go a long way to helping more young adults enter the workforce, and – particularly when combined with other smart policies like raising the minimum wage – would help make work pay and encourage more young New Jerseyans to fully participate in the state’s economy.

A Diverse Group of Workers Would Benefit from EITC Expansion

Proposals to extend the EITC to childless workers would reward the hard work of a broad swath of people in every state – young and older, male and female, and across all races – who do important low-paid jobs in hospitals, schools, office buildings, and construction sites. (See Appendix for full breakdown by occupation.)

demographics-eitc-expansion-01In New Jersey alone, thousands of workers across different ethnic groups and vocations would benefit from an EITC expansion to childless workers.

Looking at the most modest expansion plan, the Obama/Ryan plan, at least 101,000 New Jerseyans between 21 and 24 years old would be helped. At least 57,000 African Americans, 113,000 Latinos, 145,000 Whites (Non-Hispanic), and 25,000 Asians of all ages would be helped. Additionally, at least 9,000 veterans and active duty military members would be helped by the Obama/Ryan EITC expansion. (Detailed demographic and occupational breakdowns are not currently available for the Booker/Baldwin proposal.)

If Congress Fails to Act, New Jersey Should Step Up

While the cleanest path forward to expand the EITC to these workers without children is at the federal level, if Congress fails to act, New Jersey should follow the lead of other states and consider implementing the EITC expansion at the state level.

In 2014, Washington, D.C. expanded its EITC for childless workers from those who make under $14,000 to those who make under $23,000. It also increased the maximum credit from about $200 to about $500.[11] In May of this year, the Minnesota legislature passed a bill that would have lowered the age of eligibility for childless workers from 25 to 21 and increased the size of the credit.[12] Earlier this year, both houses of the Maryland legislature were poised to pass bills that would have expanded the EITC, but ultimately failed to do so. The bills would have expanded Maryland’s eligible EITC from childless workers who make $11,000 or less to those who work full-time and earn $18,720 or less per year, and they would have also increased the amount of credit received.[13]

Whether it occurs at the federal or state level, expanding the EITC for younger workers without children would be a significant boost for hundreds of thousands of New Jerseyans, and the benefits would be felt for years to come.

Appendix: Number of Workers Helped, Selected Occupations

occupations-eitc-expansion-01

Endnotes

[1] Center on Budget and Policy Priorities, Strengthening the EITC for Childless Workers Would Promote Work and Reduce Poverty, April 2016.

[2] New Jersey Policy Perspective, New Jersey’s Sluggish Recovery Hurting Working Families, September 2016.

[3] The Obama proposal would also extend eligibility to workers age 65-66, while the Ryan proposal would not.

[4] Ibid. 1

[5] The state Earned Income Tax Credit will rise to 35 percent under A-12, which was signed into law by Governor Christie on October 14, 2016.

[6] Ibid. 1

[7] White House Council of Economic Advisers, Economic Perspectives on Incarceration and the Criminal Justice System, April 2016.

[8] Center for American Progress, EITC Expansion for Childless Workers Would Save Billions – and Take a Bite Out of Crime, August 2016.

[9] Ibid. 1, Figure 4

[10] Ibid. 2

[11] DC Fiscal Policy Institute, District of Columbia’s Earned Income Tax Credit, August 2014.

[12] Minnesota Budget Project, 2016 Tax Bill Provisions Focus on Working Minnesotans, May 2016.

[13] Tax Justice Blog, Income Tax Cuts, Including Expanded EITC, Fail to Make It Across Finish Line in Maryland, April 2016.

The Tax Cut Package, By the Numbers

Posted on by Jon Whiten

This afternoon New Jersey’s political leaders will host a “roundtable” to tout the recently enacted tax-cut package’s supposed positive impact on the economy and “value for retirees.”

What they won’t likely tout is the package’s reckless nature, or the fact that it will certainly make it all that much harder for New Jersey to provide adequate services to all its residents; create a strong safety net for the record numbers of New Jerseyans in poverty; prevent additional and dramatic increases in the cost of college tuitions or transit fares; or help tame property taxes.

They also won’t likely tout that the tax cut’s dollars will disproportionately go to the most well-off in the state (and out of the state, since many heirs to New Jersey estates do not reside here), and will hardly be noticeable to many middle class or working poor families.

Since they will likely fail to raise the critical issues, we will:

$1.4 billion: The total amount of lost revenue from the five tax cuts and credits

Sales Tax Cut

45%: The share of the overall tax cut from the sales tax reduction, which will be split between the approximately 9 million residents of New Jersey, as well as plenty of out-of-state residents who spend money here. (About 20% of the sales tax cut will go to non-New Jerseyans.) For New Jersey residents = an average tax cut of about $99 a year

Of this:

  • About 64% will go to the top 40% of all New Jersey households (those with annual incomes over $79,000)
  • About 17% will go to households in the middle (with incomes between $49,000 and $79,000)
  • Just 18% will go to the bottom 40% of all New Jersey households (those with incomes below $49,000)

Estate Tax Elimination

39%: The share of the overall tax cut that will be split between about 4,000 heirs of New Jersey’s largest estates, via the total elimination of the estate tax ($562 million) = an average tax cut of about $140,000

Of this:

      • Approximately 72% will go to a few hundred (about 22%) of the heirs who currently pay the tax; those who are inheriting the largest multi-million-dollar estates
      • The rest (just 28%) will go to 78% of the heirs who currently pay the tax; those who are inheriting smaller – but still sizable – estates valued between $675,000 and $2 million
      • The 96% of estates left by deceased New Jerseyans that are worth less than $675,000 will continue to be untaxed

Retirement Income Exemption

9%: The share of the overall tax cut that will be split between about 200,000 New Jersey households with annual retirement income between $10,000 and $100,000, via a 400 percent expansion of an existing tax exemption on retirement income = an average tax cut of approximately $670

Of this:

      • About 84% will go to the top 40% of all New Jersey households (those with annual incomes over $79,000)
      • About 16% will go to households in the middle (with incomes between $49,000 and $79,000)
      • Just 1% will go to the bottom 40% of all New Jersey households (those with incomes below $49,000), because these taxpayers are already largely covered under the current exemption

Earned Income Tax Credit Expansion

5%: The share of the overall tax cut that will be split between nearly 600,000 working families who are struggling to get by in high-cost New Jersey, via the increase in the state Earned Income Tax Credit to 35% of the federal level = an average tax cut of $118

Veterans Exemption

2%: The share of the overall tax cut that will be split between an estimated 220,000 veterans that have income tax liability in New Jersey (the Office of Legislative Services estimates that half of all veterans in the state pay no income tax and thus would receive no benefit) = an average tax cut of $105

 

Wealthy New Jerseyans to Gov. Christie: Preserve the Estate Tax

Posted on by Jon Whiten

When the state legislature started debating a transportation-funding package that included a complete elimination of the estate tax last week, NJPP teamed up with the national organization Responsible Wealth to bring together wealthy New Jerseyans to speak up for common good instead of a tax break for them and their peers.

In just a few days, over 40 wealthy New Jerseyans signed on to an open letter urging New Jersey not to eliminate the estate tax, which would benefit top 5% of New Jersey heirs while blowing a hole of more than $500 million in the state budget.

“It would be a travesty to give a tax break to a small cohort of wealthy families (including ourselves) at the expense of adequately funding schools, health care, public infrastructure and other pressing needs in the state,” the letter reads. “Eliminating New Jersey’s estate tax after 100 years would be a short-sighted mistake.”

Want to sign on to the letter? Email me at whiten (at) njpp.org

Big Promises, Few Answers on Casino Expansion

Posted on by Gordon MacInnes

By Gordon MacInnes and Sheila Reynertson, President and Senior Policy Analyst. Research assistance: Yixin Liu, Neha Mehta, Paul Siracusa, Annelisa Steeber, Jared Sussman

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

This November, New Jersey voters will consider a constitutional amendment to permit the expansion of casino gambling to North Jersey. The proponents of this expansion claim that:

  • Two North Jersey casinos will save Atlantic City from failing as a tourist destination
  • The construction and operation of the two casinos will spark a boom in jobs and economic activity
  • Struggling seniors and disabled New Jerseyans will be assisted with more generously funded benefits
  • The shrinking equine industry will receive a subsidy to preserve jobs and economic activity

These are hefty promises, and as such they are worth exploring. But is casino expansion all it’s cracked up to be? The short answer is “absolutely not.”

Gambling on Casinos to Revive Atlantic City: Short-Term Win, Long-Term Failure

When New Jersey voters approved a 1976 amendment allowing casinos to open in Atlantic City, it created a monopoly on casino gambling in the middle of one of the world’s largest and richest markets with Las Vegas as its only competitor. Just 40 years later, Atlantic City’s casino industry has rebalanced itself following the shuttering of five casinos, but unemployment is at record levels and its municipal government is close to declaring New Jersey’s first bankruptcy since the Great Depression. There is now a heated war of words over the best way to “save” Atlantic City between those who advocate creating competing casinos in North Jersey and those who point to the cannibalization of the gambling market in neighboring states that triggered the crisis.

Proponents of the 1976 casino legalization, operating as the “Committee to Rebuild Atlantic City,” saw casinos as the savior that Atlantic City needed. Their campaign centered on casinos as the means to turn Atlantic City into a magnet for convention and family tourism.

The 1977 Casino Control Act stated that the two goals of casino gambling were to revive Atlantic City’s tourism industry and to spur urban redevelopment.[1] Codified in the legislation was the optimistic promise that casino gambling would “fix” Atlantic City. The language of the law clearly implies that casinos were never intended to be the sole attraction of the City’s tourist economy.[2] Unfortunately, almost all the new economic activity and job creation was concentrated in those blocks occupied by the 12 licensed casinos. Neither the State nor Atlantic City focused their attention on the creation of non-gambling attractions beyond the construction of the Convention Center and a modernized rail station.

As Casinos Flourished, the Rest of the City Faded

The first casino to open was Resorts International in 1978,[3] as it was the only then-existing hotel in Atlantic City that possessed at least the 500 rooms required by the Casino Control Act that its owners helped write.[4] Resorts enjoyed a 13-month monopoly before Caesars Boardwalk Regency opened. By 1987, Atlantic City boasted 12 casinos and established itself as a premier gambling destination.

While the number of visitors during that first decade skyrocketed nearly five-fold,[5] casinos alone reaped most of the benefits of the boom. New visitors came to Atlantic City with no reason to leave the casinos, since they housed restaurants, shops, spas, gyms and performance theatres. In fact, many of Atlantic City’s most iconic businesses closed their doors shortly after casino gambling took off.[6]

This is not a historical accident, but a result of policy. The 500-room minimum in the Casino Control Act limited applications for casino licenses to resort-style hotels that catered to tourists’ every need.[7] This made it extremely difficult for non-gambling tourist businesses to develop.

eating-establishments-ac-01For example, before casinos arrived in Atlantic City there were 242 eating and drinking establishments. By 1996, just 142 were left – including the many bars, cafes and upscale restaurants inside the casinos.[8]

Casinos became the centerpiece of Atlantic City’s tourism offerings. But the promise that casinos’ good fortunes would spill over to the city’s broader tourist economy was never fulfilled as casinos monopolized tourism in Atlantic City and local and state governments did little to stimulate non-gambling attractions.

A Lack of Urban Redevelopment

The other promise of casino gambling in Atlantic City – urban redevelopment and revitalization – has been largely ignored as any drive around the city will confirm. Particularly as the number of casinos shrinks, it’s clear that the economic fortunes of Atlantic City remain unsustainably tied to a single industry.

Initially, the Casino Control Act required casinos to pay a portion of their revenues directly to the redevelopment of the city to ensure that the rest of Atlantic City reaped the benefits from casino gambling.[9] But there was a loophole. Casinos could either designate two percent of their revenue to Atlantic City revitalization or retain the revenue for five years and pay it as a tax to New Jersey.[10] Every casino chose the second option.[11] This meant that the funding for redevelopment in Atlantic City was delayed and promises of revitalization unfulfilled.

So in 1984, New Jersey created the Casino Reinvestment Development Authority (CRDA) to oversee the revitalization of Atlantic City.[12] The state flipped the incentive for the casinos by offering two options: spend 1.25 percent of gross revenue on CRDA-issued bonds for urban and economic development, or pay a 2.5 percent tax to the state. This time all the casinos chose the first option.

But over time, the redevelopment mission was diluted by the legislature, allowing CRDA to spend money on tourism-related activities that directly benefited the casinos – investment that was initially banned.[13] The casino industry – not Atlantic City – became a major beneficiary of CRDA’s investments that focused on new conference centers and restaurant facilities on casino premises.

As New Jersey’s East Coast Monopoly Ended So Did the Growth in Revenues

Despite having an East Coast monopoly on casino gambling for more than 26 years, New Jersey levied a tax of just 8 percent on gambling winnings of Atlantic City’s casinos[14] – just a touch higher than the state’s pre-1980 corporate income tax of 7.5 percent.

Overall, revenues from casino gambling grew steadily until 2006 when they topped off at $502 million. Then, revenues began to decline rapidly.[15] Tax revenues from casinos are now hovering in the $200 million range – levels last seen in the mid-1980s.

The economic decline of Atlantic City and the steady reduction in state revenues was accelerated primarily by the expansion of gambling in neighboring states.[16]

Pennsylvania legalized slot machines in 2004, saw the opening of its first casino in 2006 and offered table games in 2010.[17] By 2012, four Pennsylvania casinos were located in the metropolitan Philadelphia area. Another Philadelphia casino is slated to open this year.[18] Within a decade, Atlantic City lost about a third of its customer base.

Pennsylvania casinos pay a 34 percent tax on slot machines and other electronic games, and a 14 percent tax on table game revenue.[19] In 2011, the last year that casino winnings in Pennsylvania were less than New Jersey’s ($3.0 billion vs. $3.3 billion), tax collections were more than five times higher in the Keystone State ($1.5 billion) than the Garden State ($278 million).[20]

Gambling in Pennsylvania isn’t the only competition hurting Atlantic City. Delaware, Maryland, New York and Connecticut have all introduced or expanded gambling, carving up the market’s customer base and eating away at tax revenue potential for the entire northeastern region.

Lesson number one: New Jersey and Atlantic City failed to exploit their monopoly on casino gambling by tending to the casinos and little else.

Without Knowing Tax Rates How Can We Talk About Revenue?

Its proponents say casino expansion will help rescue Atlantic City, dramatically increase support for struggling seniors and the disabled, help the fading horse racing industry and help host municipalities and counties. The number commonly cited is $500 million in new revenue each year, with at least $200 million going to seniors and the disabled and $200 million to assist rebuilding Atlantic City. But essential questions about the taxes to be imposed and who decides about their distribution remain unanswered.

The two presiding officers of the Assembly and Senate have refused to indicate what level of taxation would be imposed on the two casinos. This lack of transparency on their part makes the promises of the proponents close to worthless.

Assemblyman Caputo, a former casino executive and a prime sponsor of the referendum, finally introduced in mid-September a non-binding resolution to frame the tax rates and the uses of the revenue. Caputo voiced concern that there was insufficient transparency to guide voters’ judgments. His resolution expands the uses for the expected revenues to also include “infrastructure and public places” at the county level and “transportation improvements and airport enhancements.” Expanded uses threaten, of course, to further reduce the funds that would be available for Atlantic City.

An earlier supporter of tax rates in the 40 to 60 percent range, Caputo’s resolution would assess a tax rate that is characterized as “considerably higher” than the rate imposed on Atlantic City, but would be “tiered” to reflect the scale of investment.[21] This first inkling of the tax rate range must have been music to the ears of the two most likely developers, particularly Jeff Gural of the Meadowlands who earlier had suggested that a 55 percent tax rate was fair but now says nothing more than 35 percent is acceptable. Paul Fireman, the Jersey City waterfront developer, threatened that any tax even as high as 35 percent would lead to a cutback in the scale of his casino.

A concurrent resolution filed 50 days before the public must vote on the casino referendum may be better than no information at all. However, Caputo’s effort is too late.

Given the stubborn failure of the legislative leadership to even post legislation that sets the prospective tax rate on North Jersey casinos, there is no way to correctly forecast the revenues that will be available for seniors, the disabled or Atlantic City. Given the false promises of the past, healthy skepticism is advised.

Lesson number two: Claims promising that North Jersey casinos will produce revenues adequate to rescue Atlantic City and expand assistance to seniors and the disabled should be treated as speculation and hypothesis.

Transportation Infrastructure: How to Deal with Congestion, and Who Will Pay?

To be successful, North Jersey casinos will require improved roads and public transit, a burden that cannot simply be handed off to the municipalities and counties selected for the two casinos.[22]

Proponents of a Meadowlands casino boast that their location is just 15 minutes away from Manhattan. While the extreme west side of Manhattan might be that close on a quiet August weeknight, the idea of a 15-minute jaunt from anywhere else in Manhattan is close to fantasy. And the two major routes through the Meadowlands are already two of the state’s most congested highways, yet no plans are in place to change either transit or highway access to the Meadowlands.

The proposed Jersey City site is convenient to the Turnpike Extension’s exit 14B (just before the frequently backed-up Holland Tunnel), but a fair distance from the Bergen-Hudson Light Rail station and not walkable from the nearest PATH station. Given its waterfront site, the proposed casino is plainly aimed at the New York City market and its 50 million annual tourist visitors.

Yes, the Hudson River can be crossed by ferries, and a ferry port is a part of the plans advanced by developer Paul Fireman. That’s great for some visitors. But a big part of his pitch is the creation of 6,000 unionized jobs to operate the casino.[23] In the absence of any convenient and affordable public transit near the site, how will all those workers get to work on a 24-hour daily schedule? This is a particularly important question for the Jersey City residents and other nearby municipalities who presumably would fill many of the lower-paid positions in the casino, restaurants and hotel.

Lesson number three: New Jersey has no plans in place to improve transportation to proposed casino sites in Jersey City and the Meadowlands.

Casino Expansion Will Decimate, Not ‘Save,’ Atlantic City

Despite a sharp decline in Atlantic City casino revenues following the Pennsylvania market competition, a saturated regional market and New Jersey’s history of disappointingly oversold gambling endeavors, casino expansion supporters tout hundreds of millions of dollars in tax revenue, thousands upon thousands of jobs and – crucially – a helping hand for Atlantic City.[24]

The three leaders who are central to approving policy changes in New Jersey ­– the Governor, Assembly Speaker and Senate President – all support the casino expansion referendum and suggest it will boost Atlantic City.

And prospective casino developer Jeff Gural asserts that only the passage of the referendum will save Atlantic City from being “finished” and that it can use the “$200 million a year for 15 years” to develop non-gambling attractions. He estimates that two North Jersey casinos will pay $500 million in taxes, ‘two and a half times what 7 or 8 casinos in Atlantic City” pay.” He also states that he would invest in Atlantic City “in a heartbeat” if North Jersey casinos are approved.[25]

These big promises sound all too familiar. But will New Jersey repeat its mistakes by accepting these exaggerated promises? Remember the lesson from the opening of Pennsylvania’s casinos: over a ten-year period beginning in 2004, Atlantic City lost about one-third of its “convenience’ gamblers and in 2014 one-third of its casinos shut down. Given that at least one-third of its remaining customer base resides in North Jersey, why would the results not be the same?

Mr. Gural’s optimism and his guarantee that Atlantic City can realize $200 million annually for 15 years raises the stakes on the tax rate required to generate such certain funding. His math also collides with the mandate of the referendum legislation.

First, the amendment limits Atlantic City’s share of the casino tax collections to not more than one-third of the revenues collected in any fiscal year. Second, Atlantic City’s share of revenues declines by 10 percent with every $150 million collected up to $450 million (at which point Atlantic City would receive $180 million). Given these facts, for Atlantic City to realize its $200 million in the first full year of both North Jersey casinos operating would require tax collections of $610 million – a target that no advocate has advanced.

In June, Fitch ratings issued its analysis of the impact of North Jersey casinos on Atlantic City, finding that at least three Atlantic City casinos would be shut down by the advent of new casinos. While the most vulnerable of those identified – Trump Taj Mahal – has already closed, both the Golden Nugget and Resorts are the other two identified as not being able to sustain what is expected to be a 20 percent reduction in gambling winnings.[26] Even the “breathing space” of four years or so it would take to authorize, license and construct two large casinos might not be adequate for weaker casinos to invest in attractions to hold their North Jersey customers. “Day-trippers” would have little reason to travel to Atlantic City with more convenient magnets minutes to an hour away.

Lesson number four: The heavily-advertised assertions that North Jersey casinos would “rescue” Atlantic City are based on implausible hypotheses and inaccurate citation of the facts. Neutral Wall Street analysts target at least three casinos for closure.

What Will New York Do?

Once New York State authorized casino gambling, it focused primarily on employing casinos to stimulate economic development and job creation in struggling upstate areas. Its 2015 authorizing legislation placed a seven-year moratorium on permitting casinos in New York City beyond the “racino” already operating at Aqueduct Racetrack. With six years remaining on the moratorium, New Jersey developers are hoping to gain approval in 2016 and have their full-service casinos operating in time to beat potential New York City competitors, which would take eight to 10 years to open assuming the current moratorium holds.

The New York metropolitan area is the nation’s most tempting market. The success of racinos (which offer only electronic games) in Queens and Yonkers also suggest the potential magnitude of the gambling market. In just the first five months of 2016, the two racinos contributed $277 million to education, far more than eight Atlantic City casinos generated all last year. Of course, the 50 percent tax on New York slots versus New Jersey’s 8 percent tax helps explain this imbalance.

Approval of November’s North Jersey casino question would be certain to produce a quick reaction from New York State. Here’s how the chair of the New York Assembly gambling committee put it: “I’m not interested in creating a border war with New Jersey, but New York has a vested interest in gambling and we’re not going to allow one of our neighbors to take away from that.”[27] This statement is no guarantee that New York would take rapid action to end the New York City moratorium, but it is enough of a warning to dilute the claims of North Jersey casino developers that casinos in Manhattan or the inner boroughs “will never happen.”[28]

In June, both chambers of the New York Legislature passed resolutions recognizing the threat of the New Jersey casino referendum to New York’s budding gambling industry and agreed to take quick action should New Jersey voters approve it.[29]

Lesson number five: The chances are excellent that New York would move quickly to authorize full casinos in New York City should the November 8 referendum be approved.

Endnotes

[1] New Jersey Casino Control Act–Introduction and General Provisions, vol. N.J.S.A. 5:12–1 through 5:12-49, n.d.

[2] New Jersey Casino Control Act–Introduction and General Provisions, vol. N.J.S.A. 5:12–1 through 5:12-49, n.d.

[3] New York Times, It’s ‘Place Your Bets’ as East’s First Casino Opens, May 1978. http://query.nytimes.com/gst/abstract.html?res=9503E7DE1030E632A25754C2A9639C946990D6CF

[4] A provision in the Casino Control Act that placed a minimum number of room criterion on casinos, making Resorts the only hotel that was eligible for a casino license at the time.

[5] UNLV Center for Gaming Research, Atlantic City Casino Statistics. http://gaming.unlv.edu/abstract/ac_main.html

[6] Casino Connection AC, 30 Years of Gaming, May 2008. http://www.casinoconnectionac.com/articles/30_Years_of_Gaming

[7] CCA, 5:12-83.

[8] Government Accountability Office, Impact of Gambling: Economic Effects More Measurable than Social Effects, 2000, p. 21. http://www.gao.gov/assets/230/229051.pdf

[9] CCA 5:12-144 b through e.

[10] Cathy H. Hsu, ed., Legalized Casino Gaming in the United States: The Economic and Social Impact (New York and London and Oxford: The Haworth Hospitality Press, 1999); Harriet Newburger, Anita Sands, and John Wackes, ATLANTIC CITY: PAST AS PROLOGUE A Special Report by the Community Affairs Department.

[11] New Jersey Casino Reinvestment Development Authority, History of CRDA. http://www.njcrda.com/about-us/history/

[12] Legislation pertaining to the CRDA is found in Article 12 of the CCA.

[13] Casino Control Act–Casino Reinvestment http://www.state.nj.us/casinos/actreg/act/

[14] New Jersey Division of Gaming Enforcement, Atlantic City Gaming Industry Casino Revenue Fund Taxes and Fees Source Report, November 2015. http://www.nj.gov/lps/ge/docs/Financials/CRFTF/CRFTFSourceReport.pdf

[15] UNLV Center for Gaming Research, Atlantic City Casino Statistics: Casino Revenue. http://gaming.unlv.edu/abstract/ac_main.html

[16] Repetti and SoYeon Jung, “Cross-Border Competition and the Recession Effect on Atlantic City’s Gaming Volumes,” UNLV Gaming Research & Review Journal 18, no. 2 (July 2014): 23–38“Interactive Map: Where Is the Casino Reinvestment Development Authority Spending Its Money? | The Asbury Park Press NJ | App.com,” accessed April 25, 2015, http://archive.app.com/interactive/article/20130611/SPECIAL17/306110001/Interactive-Map-Where-Casino-Reinvestment-Development-Authority-spending-its-money-

[17] UNLV Center for Gaming Research, Pennsylvania Gaming Summary. http://gaming.unlv.edu/abstract/pa_main.html

[18] Wikipedia, Pennsylvania Gaming Control Board. https://en.wikipedia.org/wiki/Pennsylvania_Gaming_Control_Board

[19] American Gaming Association, 2014 State of the States. http://www.gettoknowgaming.org/by-the-book

[20] American Gaming Association, 2012 State of the States.https://www.americangaming.org/sites/default/files/research_files/aga_sos_2012_web.pdf

[21] See ACR 206 filed September 19, 2016.

[22] Alan Mallach, Economic and Social Impact of Introducing Casino Gambling: A Review and Assessment of the Literature (Federal Reserve Bank of Philadelphia, March 2010), 18.

[23] The Jersey Journal, Developer touts casino plan as ‘windfall’ for Jersey City, September 2016. http://www.nj.com/hudson/index.ssf/2016/09/paul_fireman_touts_jersey_city_casino_plan.html

[24] NJBIZ, Lesniak: Gaming in North Jersey Will Save Atlantic City, December 2014. http://www.njbiz.com/article/20141215/INDINSIGHTS/141219869/Lesniak:-Gaming-in-North-Jersey-will-save-Atlantic-City.

[25] Jeff Gural, interview on and letter to ACprimetime, September 13, 2016. http://acprimetime.com/gurals-bullish-atlantic-city-north-jersey-casinos-get-voter-ok/

[26] Online Poker Report, Resorts And Online Partner PokerStars Disagree With Fitch Ratings’ Assessment Of North Jersey Casino Risk, June 2016. http://www.onlinepokerreport.com/21003/resorts-pokerstars-refute-fitch-ratings-new-jersey-casino-claims/

[27]Casino.org, New Jersey Casino Expansion? Not So Fast, Say New York Lawmakers, June 2016. https://www.casino.org/news/new-jersey-casino-expansion-not-so-fast-say-new-york-lawmakers

[28] op cit. ACprimetime interview

[29] See New York Senate resolution K1604 https://www.nysenate.gov/legislation/resolutions/2015/k1604 and New York Assembly resolution K01604 http://nyassembly.gov/leg/?default_fld=&leg_video=&bn=K01604&term=2015&Summary=Y&Text=Y, June 2016.

Transportation/Tax Deal a Failure in Leadership

Posted on by Gordon MacInnes

This op-ed appeared in the October 9, 2016 edition of the Bergen Record.

New Jersey Policy Perspective recently released a report detailing nine key decisions that sent our state spiraling downward towards financial crisis, without enough funds to cover its past, current and future obligations, invest in the assets that grow a strong state economy or provide an adequate safety net for its neediest residents.

Little did we know that if we waited just a few more weeks, we could’ve added number 10.

Late on Friday, New Jersey’s three most powerful politicians – the Governor, Assembly Speaker and Senate President – announced a reckless plan which stands to cost current and future taxpayers tens of billions of dollars, further decimating the state’s ability to do much of anything that matters. They did so at a near-5 pm press conference, of which reporters were notified 18 minutes in advance and at which zero questions were taken. Given how careless the deal is, no wonder they wanted to steal away into the weekend and then pushed the deal through both houses of the legislature in 7 days without a single public hearing.

The proposal finally – after decades of inaction – increases New Jersey’s fuel taxes to support desperately needed investment in our roads, bridges and public transit. And it includes a 17 percent increase in the state’s Earned Income Tax Credit to ensure that the gas tax does not worsen the plight of working families earning less than $45,000 a year.

So far, so good. But unfortunately, that’s where sensible policymaking ends and the dangerous deal-making begins.

The Christie-Prieto-Sweeney plan also includes a package of tax cuts that, when all’s said and done, will cost New Jersey about $1.4 billion a year while disproportionately helping the most well-off families in the state. The centerpiece of the plan ends estate taxes on a few thousand of New Jersey’s wealthiest families each year.

Why are strong words like “reckless” and “dangerous” used to address the Christie-Prieto-Sweeney plan? Because New Jersey is already broke and is in no position to watch another $13 billion disappear for essential services and valuable investments over the next 10 years.

Moreover, it is not possible to achieve “tax fairness” from an action that would mostly help heirs to large fortunes and sprinkle hardly noticeable tax cuts around to everyone else.

On the tax cuts alone, most New Jersey families would save somewhere between $6 and $10 a month while trying to survive in high-cost New Jersey on no more than $79,000. Once you factor in the increased fuel taxes these same families will have to pay, even this paltry “savings” evaporates completely. How the word “fairness” can be used to describe a deal that richly rewards a few families while handing pennies to the rest of us defies common sense.

Here’s an example: If you are a family of two adults and one child trying to survive on, say, $50,000 a year, you probably have very little money left after you pay the rent and taxes, buy the groceries and gas to get to work. But you may on occasion go out for a $30 dinner. And at that dinner, instead of having to pay an additional $2.10 in sales tax for your night out, you’ll pay an extra $1.99 – a dime and penny saved.

Yet on the other end of the economic spectrum, if you’re the heir to a very large estate, you stand to save millions of dollars. The hundred or so people who inherit estates over $5 million each year in New Jersey will each receive a tax break of just over $1.1 million, in fact. These are the only families that are doing well in New Jersey, which was one of only eight states that saw income inequality rise last year. The last thing they need is a million-dollar tax break.

And it won’t be these families who ultimately pay the price for these tax cuts. By the time the plan is fully phased in, the state will be confronted with about $1.4 billion less in yearly tax revenue to try to stabilize NJ Transit fares, reduce the property tax bills for middle- and working-class residents, or keep tuition rates down at public colleges. And the bill handed to future generations will grow by nearly $100 million each year. This will come at a time when all of those essential services and investments have already been shortchanged over the past two decades because of secretive, swift and confusing actions taken by governors, legislators and the Supreme Court.

New Jersey’s only chance to make a comeback must begin by not digging the hole any deeper. That’s the hole that makes New Jersey 50th in income growth following the Great Recession, 49th in its credit rating and 4th in the tuitions it charges at its public universities.

If our political leaders won’t halt the downward slide, then it will be up to their legislative colleagues to step up and say “Enough!”

Five Reasons to Vote No on the TTF Tax Package

Posted on by Jon Whiten

 

  1. It’s Nonsensical

Swapping a long-overdue tax increase that will be used for a dedicated investment with a wide-ranging package of tax cuts that will drain money from other state funds makes zero sense, as Vice President Joe Biden’s former chief economist explains.

  1. It’s Regressive

The entire package would bestow the greatest economic benefits on well-off New Jersey families – particularly on the heirs to the state’s largest estates. Families earning between $25,000 and $79,000 a year – the working- and middle-class – would be the biggest losers with the gas tax increase – even with the tax cuts included – according to the Institute for Taxation and Economic Policy, a national research organization.

  1. It’s Reckless

The package would cost New Jersey significantly more than $10 billion over the next 10 years. At a time when the state already cannot meet its past, current and future obligations; invest in the assets that grow a strong state economy; or provide an adequate safety net for its neediest residents, blowing a hole of this magnitude in the state’s budget is financially irresponsible.

  1. It’s Not the Best Transportation Funding Fix & Could Harm Public Transit

On the Transportation Trust Fund side of the equation, the deal merely “continue[s] the trend of stagnant funding for another eight years,” according to analysts at the Tri-State Transportation Campaign. At the same time, the package “could spell disaster for NJ Transit’s operating budget,” Tri-State warns, since NJ Transit operations are paid for through the budget. (The NJ Transit operating-budget issue is also of concern to NJ Future.)

  1. It Does Zilch to Address Property Taxes

Yes, the package to be voted on Friday includes many tax cuts. But it includes nothing that will tame – much less reduce – the one tax that all New Jersey families care greatly about: the property tax. In fact, with its income tax cuts and breaks, this deal actually makes property tax relief for seniors, working families and others more difficult, as it will shrink the amount of dollars in the Property Tax Relief Fund by about $300 million a year.

Transportation-Funding Deal Endangers New Jersey’s Future & Fails the ‘Tax Fairness’ Test

Posted on by Jon Whiten

To read a PDF of this report, click here.

After a months-long stalemate, New Jersey’s three most powerful policymakers announced late last Friday that they’d come to an agreement on investing in the state’s transportation networks. As part of the deal, the leaders have agreed to a large-scale package of tax cuts that would disproportionately benefit well-off New Jerseyans while further decimating the state’s ability to pay for essential services, promised obligations and other critical investments.[1]

decade-of-revenue-loss-01

The tax cuts would cost the state approximately $13 billion over the next 10 years, and are the price political leaders are willing to pay as a tradeoff for finally enacting a gas tax increase for essential transportation capital funding over the next 8 years.[2]

At a time when the state already cannot meet its past, current and future obligations; invest in the assets that grow a strong state economy; or provide an adequate safety net for its neediest residents, blowing a hole of this magnitude in the state’s budget is reckless, financially dangerous and – make no doubt about it – unfair.

This projected revenue loss does not include the invisible costs that will almost certainly accumulate quickly as a consequence of yet another round of credit downgrades for New Jersey bond issues, which will produce higher interest rates and tens of millions of dollars in new yearly costs.

Under the proposed plan:

  • New Jersey’s sales tax would be cut by 5 percent, to 6.625 percent from 7 percent, over two years, costing about $598 million a year once fully phased in and $735 million a year by 2026
  • New Jersey’s estate tax would be completely eliminated over two years, costing about $485 million a year once fully phased in and $690 million a year by 2026
  • A tax exemption for retirement income would be expanded by 400 percent over four years to reach higher-income families, costing up to $193 million a year once fully phased in and $221 million a year by 2026
  • The state Earned Income Tax Credit would be increased from 30 to 35 percent of the federal credit, costing about $61 million a year to start and $73 million a year by 2026
  • A new income tax exemption would be extended to some New Jersey veterans, costing about $23 million a year

These tax cuts would deprive New Jersey of the resources it needs to thrive as a state, from helping to make college affordable to protecting our environment to ensuring that the least fortunate among us have adequate assistance to get by.

But it’s even worse than that.

With the exception of the EITC increase – necessary to protect New Jersey’s poorest families from paying the biggest chunks of their earnings to the new fuel taxes[3] – these tax cuts would deliver the most benefit to already well-off families who need it least and guarantee that this tax package fails any reasonable “tax fairness” test.

Estate Tax Elimination Benefits a Fortunate Few

The total elimination of the estate tax, in particular, is incredibly slanted to the wealthiest inheritors of money in the Garden State. In fact, of the approximately 70,000 people who die in New Jersey each year, only about 3,500 – or 5 percent – leave behind estates large enough to owe any estate tax. These estates belong to New Jersey’s wealthiest households.

estate-tax-collections-01

And fewer than 100 estates – the very largest, each of which has taxable assets of more than $5.34 million – pay 41 percent of estate tax in a given year. Eliminating this tax would give these wealthy families a tax break averaging $1.3 million.[4]

Contrary to the myths about the estate tax, it is clearly not a tax on the state’s middle class. In fact, the median net worth of all Garden State households is $117,000 – and the threshold for filing an estate tax return is five times that amount. Even households at the top – those with the highest 20 percent of assets – have an average net worth of $366,000, still far below $675,000 – the level at which the estate tax kicks in.[5]

While it’s true that New Jersey’s low estate tax threshold makes it an outlier among other states, completely eliminating this tax would make the state an outlier in the other direction. In fact, nearly every other state – plus D.C. – in the wealthy Northeast has an estate tax, as do other prosperous states across the country like Minnesota, Washington and Hawaii.[6]

If policymakers truly wanted to address the state’s outlier status, they would adjust the estate tax rather than completely abolishing it. For example, by raising the threshold to $1 million they could have eliminated the tax for about 2 of every 5 heirs that now owe it, while preserving over 90 percent of the revenue the tax collects.

And while proponents of eliminating the estate tax suggest it must be a top priority to stem the tide of wealth leaving the state, the actual facts flat out debunk the myth of millionaire flight.

We aren’t running out of wealthy New Jerseyans. In fact, we have the fourth highest share of millionaires of all states, and their numbers increased by 11 percent in the last decade. In addition, the number of families with taxable incomes over half a million dollars nearly doubled between 2003 and 2013 – a time including the Great Recession in which income taxes were raised on these folks not once, but twice. Lastly, revenues from the estate tax itself are at an all-time high, and are projected to grow by over 40 percent in just the next five years.[7]

Income and Sales Tax Changes Also Help Well-Off the Most

When looking at the sales tax cut, the retirement exemption expansion and the EITC increase, the fairness picture doesn’t improve much. (The veterans’ exemption is too insignificant to be able to model, and no data exists on the actual earnings of estate tax filers, just their estate sizes.)

In fact, these tax changes would give an average annual cut of $723 a year to the top 1 percent – those with annual household incomes over $808,000 – and an average cut of $76 to those in the bottom 20 percent earning less than $25,000. Those in the middle 20 percent (household incomes between $49,000 and $79,000) would get an average tax cut of $112 a year.[8]

sales-and-income-oct-2016-01

Of course, lower- and middle-income families also have – by definition – less income, so it’s instructive to look at the impact of any tax change as a share of their income. When combined with the fuel tax increases, the sales and income tax changes in this package would make the state’s tax structure less equitable.

Families earning between $25,000 and $49,000 would most feel the pinch, paying 0.17 percent more of their income to taxes each year. And families right in the middle – earning between $49,000 and $79,000 – wouldn’t be far behind, paying 0.13 percent more of their income to taxes each year.

Meanwhile, the top 20 percent of earners – those with incomes above $132,000 a year – would pay just 0.03 percent more of their income to taxes each year. And the top 1 percent, with incomes of $808,000 or more would only pay 0.01 percent more.

Endnotes

[1] New Jersey Governor’s Office, Governor Chris Christie Announces Bipartisan Agreement On Broad-Based Tax Cuts And TTF Funding, September 2016.

[2] NJPP analysis based on two Office of Legislative Services fiscal notes for different versions of the legislation A-12, which included most of the elements in this package: July 2016 (http://www.njleg.state.nj.us/2016/Bills/A0500/12_E1.PDF) and August 2016 (http://www.njleg.state.nj.us/2016/Bills/A0500/12_E2.PDF). For the period beyond OLS’s analysis, NJPP used the following growth projections to determine revenue loss: EITC (2 percent); sales tax (3 percent); retirement income (3.5 percent); estate tax (4.5 percent). This analysis uses the top of a range determined by OLS for revenue loss on the retirement income exemption, and therefore represents a reasonable maximum amount of revenue loss.

[3] New Jersey Policy Perspective, Tax Increase to Fund Transportation Should Be Combined with Credit to Help Low-Income Families, January 2015.

[4] New Jersey Policy Perspective, Eliminating New Jersey’s Estate Tax: Like Robin Hood in Reverse, January 2016.

[5] Corporation for Enterprise Development and Haverman Economic Consulting analysis of the U.S. Census Bureau’s Survey of Income and Program Participation, 2008 Panel, Wave 10, 2013. For more:

[6] Center on Budget and Policy Priorities, State Estate Taxes: A Key Tool for Broad Prosperity, May 2016.

[7] New Jersey Policy Perspective, The ‘Exodus’ is More Like a Trickle, June 2016.

[8] Analysis using Institute on Taxation and Economic Policy microsimulation, using 2016 incomes. The analysis is targeted to tax impacts for New Jersey residents only using an estimate that non-residents pay 20 percent of New Jersey sales taxes and 28 percent of fuel taxes.

The Notorious Nine

Posted on by NJPP Staff

Today New Jersey Policy Perspective released a major new report on nine key decisions that help explain why New Jersey has gone from an economic powerhouse with a coveted AAA bond rating to a state struggling to grow its economy or even make basic ends meet, with a bottom-basement credit rating.

For the first time ever, NJPP produced an accompanying short video to accompany the report, which is embedded below.

For the press release, click here.

For the full report, click here.

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