Tax and Budget Archives - Page 33 of 37 - New Jersey Policy Perspective

‘Reckless’ Transportation Funding Plan Perverts Notion of Tax Fairness

Posted on June 20, 2016October 11, 2020 by Gordon MacInnes

This op-ed appeared in the June 19, 2016 edition of the Bergen Record.

“Reckless” and “irresponsible” are two words that come to mind when reviewing the proposals released by New Jersey’s legislative leaders last Friday afternoon. Finally, after two years of staging press conferences at rusted bridges to warn about the looming bankruptcy of the state’s transportation fund, we have a proposal to provide funding for the road and transit networks that shore up New Jersey’s greatest asset: its location in the center of the world’s largest market.

Our legislative leaders have proposed secure financing for New Jersey’s roads and transit for the first time in decades, with quite similar proposals that rely on a number of different fuel tax increases. Both proposals would kick a significant amount of money into capital transportation projects for a decade, and – crucially – both include a tax credit for low-income workers, who already pay more of their limited income to state and local taxes than any other group.

But that’s where the good news ends, and the recklessness and irresponsibility begin.

The proposals, in fact, ignore New Jersey’s perilous financial situation and instead propose to accelerate its steady downward slide. Consider just some of the troubling facts:

New Jersey has the highest property taxes in the nation with a steady decline in homeowner relief for the last seven years;
State support for operating costs at public colleges has declined, while tuition rates and student debt have climbed significantly for struggling middle-class families;
The state’s critical public transit networks have been under-funded, leaving riders to foot the bill, with five fare hikes in the last 14 years, for worsening service on deteriorating equipment with increasing breakdowns;
Twenty years of raids on the state’s pension funds have produced an unimaginable unfunded liability of $125 billion, with the prospect that civil service pensions will not be fully paid in just seven years; and
The state is broke, has the second-lowest credit rating in the nation and cannot come close to addressing some of these big problems and others.

Instead of responding to the blatant signs of dangerously imprudent funding, the legislative leadership has decided to continue the practice by combining funding for transportation with a package of large-scale tax cuts that primarily benefit only the wealthy, in the name of “tax fairness.”

In what’s become the cornerstone of both plans, the Senate seeks to phase out the estate tax within three years and the Assembly within four years. The governor, meanwhile, says neither is fast enough and insists on ending the tax within two. In nearly-bankrupt New Jersey, where those working for the lowest incomes pay the highest taxes as a share of their income, while those in the top 5 percent pay the lowest, the three most powerful players in the state are racing to eliminate the state’s most progressive tax, levied on the heirs of just 4 to 5 percent of New Jersey’s most valuable estates each year.

Our leaders seek to erase the taxes for a few thousand wealthy families each year while most of the rest of us pay higher gas taxes without a penny of relief, and everyone will see the results of losing up to $550 million each year in funding for public higher education, public transit and the safety net for those of us who’ve fallen on hard times.

The proponents for erasing the estate tax claim that it will help mainly middle-class families and will keep “job creators” in New Jersey instead of fleeing to warm Florida or high-cost New York. There are plenty of stories about rich folks moving out and some of them are true. But the facts suggest something radically different:

The number of New Jerseyans claiming millionaire status is growing not shrinking (it grew by 11 percent between 2006 and 2015);
In the ten years including the Great Recession, the number of households filing $500,000 plus annual income tax returns almost doubled;
Of the top states Jerseyans “flee to,” four are states with comparable tax rates to New Jersey: California, Maryland, Massachusetts and New York (the number one destination for Jersey migrants);
Governor Christie’s own budget projects a 3.5 percent increase in revenues from the “death taxes” (higher than the budget as a whole); and
The number of New Jerseyans moving to Florida decreased significantly after Florida dropped its estate tax.

These facts have been available to our legislators and governor, yet they chose to ignore them. That’s reckless and irresponsible.

New Jersey Has Ninth Highest Level of Income Inequality in the Nation – Let’s Not Make it Worse

Posted on June 17, 2016October 11, 2020 by NJPP Staff

Eliminating estate tax will significantly widen the yawning gap between the rich and the rest

As lawmakers close in on an imprudent plan to eliminate one of New Jersey’s best tools to fight concentrated wealth and inequality, a new report released this week shows income inequality remains at record levels in the Garden State. While New Jersey’s level of inequality dropped ever so slightly from 2007 to 2013, it remains higher than it’s been since the 1920s.

New Jersey is now the ninth most unequal state in the nation, with the top 1 percent earning 25.3 times more than the bottom 99 percent, according to the report, which was published by Economic Policy Institute for the Economic Analysis and Research Network, of which New Jersey Policy Perspective is a member. New Jersey was one of only 15 states where the top 1 percent took all income gains between 2009 and 2013.

“Income inequality in New Jersey remains at heights not seen since the 1920s,” said New Jersey Policy Perspective President Gordon MacInnes. “Those at the top have been doing quite well while the rest of us have been struggling the make ends meet or, worse, falling out of the middle class or even into poverty. Now is certainly not the time to exacerbate the problem by offering sweetheart tax breaks to a few wealthy heirs.”

Other key New Jersey findings:

Between 2009 and 2013, New Jersey’s top 1 percent captured all income growth, while incomes for the bottom 99 percent actually shrank. That’s because the top 1 percent saw their incomes grow by 15.2 percent while the incomes of the bottom 99 percent fell by 1.4 percent.
The average annual income of the top 1 percent is $1,153,293, which includes everyone in New Jersey who earns at least earn $547,737.
The most unequal county in New Jersey is Essex. The top 1 percent there makes 44.8 times more than the bottom 99 percent.

To help stem the tide of rising inequality, New Jersey policymakers should:

Preserve the estate tax, which is currently under serious threat, and other progressive taxes that are based on the ability to pay
Boost working-class and poor families with smart policies, like increasing cash assistance benefits to deeply poor households under WorkFirst New Jersey, raising the minimum wage and expanding the Earned Income Tax Credit for working families
Explore tax policies that will help change the fact that New Jersey’s lowest-income families pay the highest share of their incomes to state and local taxes, while the wealthiest pay the least

Tying Transportation Funding Fix to Estate Tax Elimination is Reckless

Posted on June 10, 2016October 11, 2020 by Gordon MacInnes

This afternoon the Senate and Assembly Democrats’ both released frameworks of plans to fix New Jersey’s Transportation Trust Fund that included the outright elimination of the state’s estate tax.

A long-term plan to replenish the funding for New Jersey’s roads, bridges and mass transit is overdue and essential – but tying such a welcomed plan to an outright elimination of the state’s estate tax is financially reckless and endangers the state’s future. It has nothing to do with so-called ‘tax fairness.’

By moving to eliminate the estate tax, New Jersey’s leaders are once again severely diminishing the state’s ability to invest in more affordable higher education, cleaner air or a stronger safety net for those who have fallen on hard times. At a time when New Jersey can’t even meet its constitutional and moral obligations, let alone make investments critical to our future, our legislative leaders are choosing to dig our financial hole even deeper.

And for what? Eliminating the estate tax is no boon to the middle class, despite proponents’ claims. While 9 million of us will pay higher gas taxes, our legislative leaders propose to bail out around 4,000 of New Jersey’s wealthiest heirs each year. Eliminating the tax will help the largest estates the most, with those inheriting assets of more than $5.34 million who will see an average tax break of $1.3 million. The cost to a New Jersey that cannot pay its current and future bills will be more than a half-billion dollars every year.

There’s No ‘Exodus’ of Rich New Jerseyans

Posted on June 8, 2016October 11, 2020 by NJPP Staff

FOR IMMEDIATE RELEASE: JUNE 8, 2016

Contact: Jon Whiten, NJPP: 609-393-1145 ext. 15 (office) | whiten@njpp.org

There’s No ‘Exodus’ of Rich New JerseyansLatest research shows that the benefits of maintaining – and even raising – taxes on the wealthy far outweigh the costs

As New Jersey’s budget negotiations heat up, vitally important tax policy changes are being considered in a haze of anecdote and misinformation about who is moving in and out of New Jersey, why they do and what it means for the state’s wellbeing.

The idea that wealthy New Jerseyans are leaving the state in large numbers to avoid high personal income taxes or taxes on inherited wealth, thereby endangering the state’s prosperity, receives a lot of attention from politicians and State House insiders. But this so-called “exodus” is more like a trickle, and widespread tax flight among the well-off is little more than a myth, according to two new comprehensive reviews of data on interstate moving patterns.

Continuing to give undue attention and credence to this myth harms New Jersey’s ability to create economic opportunities and prosperity for all its residents, as experts from New Jersey Policy Perspective (NJPP) and Stanford University’s Center on Poverty and Inequality explained on a press conference call today.

“Some political leaders are imprudently connecting the widely recognized need to fund our road and transit assets with yet another tax break for the wealthiest among us,” said Gordon MacInnes, President of New Jersey Policy Perspective. “New Jersey can’t meet its current obligations nor invest in its most treasured advantage: its location and transportation networks in the middle of the world’s richest market. Tying essential investment to elimination of the estate tax is reckless economics and unfair to the bottom 96 percent of us.”

The call coincided with the release of a new NJPP report examining New Jersey’s population and moving trends over the past decade. The report makes clear that the billing of “outmigration” as a crisis by some lawmakers and lobbyists is overblown, and very dangerous to the state’s economic future, as the proposed solutions to this purported “crisis” involve tax policy changes that would harm New Jersey’s ability to invest in the assets that form the building blocks of a strong economy.

The report’s key findings:

There is no significant correlation between state taxes and interstate moves.

Proponents of cutting taxes for the wealthy use a misleading reading of Internal Revenue Service data when they contend that if a person moves from one state to another that automatically means the state they leave loses income as a result.

Even if one accurately uses IRS figures on the number of households moving, the patterns and data – if presented in context – tell a very different story – one of population, income and wealth growth – than that peddled by business lobbying groups and others who would deprive New Jersey of resources needed to help communities thrive.

Many of the households that do leave New Jersey depart for other high-cost, high-tax states.

“There simply is no empirical evidence to support the notion that New Jersey’s taxes, specifically its income or estate taxes, are driving hordes of people or billions of dollars away and shrinking the state’s economy,” said Sheila Reynertson, Senior Policy Analyst at New Jersey Policy Perspective and report author. “Without that data, there is absolutely no reason to offer tax breaks for wealthy heirs in the hopes that they will stay.”

The NJPP report comes just weeks after the release of a new landmark academic study published in American Sociological Review, which looks at tax returns of wealthy Americans over 13 years, tracking the states from which these millionaires file their taxes. The findings, which are based on data from 45 million tax records, show that millionaire tax flight occurs only at the margins of significance, Charles Varner, a co-author of the study and the Associate Director of Stanford University’s Center on Poverty and Inequality, explained on the call.

“Our study shows that millionaires are quite reluctant to leave a place where they are enjoying great success.” Varner said. “In contrast to the conventional view that elite migration threatens progressive tax policy, state millionaire taxes can be effective levers in moderating economic inequality, particularly the rising share of income held by the top 1 percent.”

The ‘Exodus’ is More Like a Trickle

Posted on June 8, 2016October 11, 2020 by Sheila Reynertson

To download a PDF of this report, click here.

It’s time to set the record straight about who is moving in and out of New Jersey, why they do and what it means for the state’s wellbeing.

For too long the so-called conventional wisdom – fueled by fear mongering and unsubstantiated claims – has said that raising revenue in New Jersey by calling on the wealthiest to pay their share of taxes for the common good drives people, and their money, away.

First and foremost, there is no significant correlation between state taxes and interstate moves.

Job opportunities and family considerations are most commonly cited as reasons for moving from one state to another. If cost of living is a factor, it is more likely that the quest for lower-priced housing and property taxes drive the decision to move, rather than other state taxes.[1]

Second, proponents of cutting taxes for the wealthy use a misleading reading of Internal Revenue Service data when they contend that if a person moves from one state to another that automatically means the state they leave loses income as a result.[2]

The income level of someone who leaves is not an accurate measure of “income migration,” because in most cases a similar income will be earned by whoever fills that person’s job.

What’s more, even if one accurately uses IRS figures on the number of households moving, the patterns and data – if presented in context – tell a very different story than that peddled by business lobbying groups and others who would deprive New Jersey of resources needed to help communities thrive.[3]

• New Jersey’s population continues to grow, even though more people move out of New Jersey than move in from other states in any given year.

• The top 10 locations favored by former New Jerseyans include four states with taxes comparable to New Jersey: New York, California, Maryland and Massachusetts.

• A substantial majority of households moving out of New Jersey to neighboring states are replaced by households from those states moving into New Jersey.

• Florida is the third most popular destination for people leaving New Jersey, and almost half of those making such a move are 55 and over. The same holds true for retirees from many other northern states, some of which have no income taxes or low income taxes.

None of this would be true if New Jersey were “the incredible shrinking state” some would have us believe – a state being hollowed out because of tax rates.

In fact, New Jersey is home to excellent public schools and colleges; safe, walkable, vibrant communities; high-quality health care; the ocean and the beach; and plentiful mass transit options into New York and Philadelphia. These valuable assets and others are what make New Jersey an attractive place to live, work and raise a family for almost 9 million people.

Of course, as is the case with every state, some choose to leave the Garden State. For many, job opportunities elsewhere prompt the move. For others, it’s time to hang up the snow shovel once and for all and retire to a warmer climate.

And, yes, some may leave New Jersey to escape the level of taxes – particularly its highest-in-the-nation local property taxes. But the claim that New Jersey’s taxes, particularly its personal income or estate taxes, are responsible for harming the state’s economy by driving people away en masse, taking billions of state income with them – is dangerously misleading. For policy to be made on the basis of this misinformation is the real threat to New Jersey’s economic future.

Few People Move Across State Lines, and Even Fewer Do So Because of Taxes

Before examining the details of state-to-state movement patterns, it’s important to note that interstate migration is not as common as one would think. More than two-thirds of Americans reside in the state in which they were born. In fact, only 2 percent of U.S. residents make an out of state move per year, a slim rate that has been falling since 1990.[4]

Of the relatively few Americans who do relocate from one state to another, a very small subset cites taxes as the reason for their moves. Since 1998, the U.S. Census has asked people who move the main reason for relocating. The two most common reasons consistently cited are “new job or job transfer” and “family reasons,” such as a change in marital status. Other common answers include housing, closer commute, retirement and college. In the most recent survey, just 13 percent answered either “other reason” or “other housing reason.” Since the survey does not explicitly offer “lower taxes” as an option, this is likely how people for whom taxes is the major reason for a move may have chosen to answer.[5]

Several rigorous statistical studies of interstate moving patterns confirm that there is no meaningful correlation between state taxes and interstate moves.[6] For example, a new long-term study of top income-earners found that the vast majority of millionaires don’t move to avoid state taxes.[7] Another study specifically looked at the impact of New Jersey’s 2004 enactment of a higher tax rate on incomes of more than $500,000 and concluded that “the effect of the new tax bracket is negligible overall. Even among the top 0.1 percent of income earners, the new tax did not appreciably increase out-migration.”[8]

More importantly, the amount of new revenue gained from the tax change dwarfed the tax payments that would have been made by those few who left. The estimated revenue lost was less than 2 percent of the overall revenue gained. In other words, New Jersey did not lose money by increasing income tax rates on the wealthiest households.

The argument that the elderly, in particular, flee taxes by moving to lower-tax or no-tax states is also not supported by the empirical evidence. The patterns of state-to-state movement among the elderly have remained relatively consistent over time, even as state tax policies toward the elderly changed significantly across states.[9] If older people who leave New Jersey are heading to popular retiree destinations regardless of tax policy, there is no reason to offer them tax breaks in the hopes that they will stay.

Many New Jerseyans Move to High-Cost, High-Tax States

The trend of people moving out of New Jersey is by no means a recent phenomenon. Nor is losing a few thousand households every year unique to New Jersey. In fact, this is part of a decades-long demographic population shift from the Northeast and Midwest to the West and South, as working-age people seek job opportunities and retirees seek warmer climates.[10]

While New Jersey is a state where more people leave for other states than move in from other states, its taxes can’t be the primary reason, judging what which states they most commonly chose. Of the top 10 destination states for departing New Jerseyans between 2003 and 2014, many are, like New Jersey, relatively high-cost and high-tax states. For example, the number one destination state is New York — not exactly a low-tax state.

What’s more, New Jersey actually enjoyed a net gain of more than 84,000 former New Yorkers during that same time. There is clearly more to the story if people are choosing to move into high-tax states like New York or New Jersey rather than into lower-tax or no-tax states.

Also, more than 190,000 households left New Jersey for Pennsylvania between 2003 and 2014. And about 8 in 10 of them were replaced by Pennsylvania households moving to New Jersey. This begs the question: if taxes are such a major factor in making relocation decisions, why has New Jersey seen hundreds of thousands of households move in from both higher-tax New York and lower-tax Pennsylvania?

Naturally, Florida is high on the list of states to which New Jersey residents move, and, again, it is misleading to assume that its tax status is the driving force behind this trend. Florida has always been a popular destination for New Jersey retirees. But this is also true of retirees from several other cold states across New England and the northern half of the Midwest – states like New Hampshire, which has no broad-based income tax or sales tax and other states with very low single-rate income taxes (Pennsylvania, Indiana and Illinois). Florida’s warm weather and lower housing costs – not taxes alone – make it a popular choice for retirees and it is likely New Jersey retirees feel the same.

Another point to consider: Just over a decade ago, Florida and New Jersey imposed the exact same estate tax. At that time, the average net annual movement from New Jersey to Florida was 8,000 households. If the estate tax was chasing retirees from the Garden State to the Sunshine State, wouldn’t that number increase when Florida began phasing out its estate tax in 2002? In fact, the opposite happened. For the past eight years New Jersey-to-Florida movement has shrunk to a net average of 6,000 households per year.

The bottom line with data about people moving to and from New Jersey is that it doesn’t tell you much. And that’s just the point – there isn’t much to tell. The story promoted by those trying to convince policymakers that taxes drive people from New Jersey turns out to be just that – a story.

New Jersey’s Population, Number of Wealthy Residents and Income Are All Growing – Not Shrinking

Proponents of cutting taxes for the wealthy have framed the so-called “exodus” of New Jersey residents and income as a serious crisis that policymakers ignore at the state’s economic peril. They do so, in part, by ignoring the fact that New Jersey’s population and income are actually growing, not shrinking – leaving policymakers and the public to ponder solutions to problems that don’t actually exist.

The claim of business lobbying groups that New Jersey “lost more than 2 million residents” between 2005 and 2014[11] is simply untrue.

In fact, the 2,090,786 people who left the state over that time were replaced by 1,408,718 who moved here from other states and 596,279 who did so from abroad. So if you only look at people who moved, New Jersey – the nation’s most densely populated state – “lost” 85,789 people over the decade. That comes to less than 9,000 a year, less than a tenth of a percent in a state with nearly 9 million residents.

And, that count doesn’t include New Jerseyans who were born here and stayed here; if you also factor in growing families, the state’s population has consistently grown over the same decade, to 8.9 million in 2014 from 8.7 million in 2005.

The Garden State isn’t just growing in population. The state continues to gain millionaires and has a higher share of them than all but three states, according to one wealth management firm’s estimates of net worth and investable assets.[12] New Jersey has 29,371 more households with assets worth more than $1 million than it did in 2006. These families have risen to 7.2 percent of the state’s households in 2015 from 6.5 percent in 2006.

Confirmation of the growing number of wealthy households can also be found among New Jersey’s personal income tax filings, which are based solely on incomes, not assets.

Between 2003 and 2013, the number of New Jersey households with annual incomes over $500,000 increased by 89 percent, jumping to 53,212 from 28,178.[13] The share of wealthy households also rose to 1.9 percent of all income tax filers in 2013 from 1.1 percent in 2003.

It’s worth noting that this growth occurred during a time that state income tax rates were raised not once but twice on these wealthy households, and the growth was this healthy despite the temporary lull during the Great Recession.

Lastly, proponents of eliminating New Jersey’s taxes on inherited wealth suggest that many of these same well-off people who grow their wealth here leave once the end of their lives draws near, in order to save their heirs from an estate or inheritance tax bill.

While some older New Jerseyans may indeed leave the state to avoid these taxes, the supposed deleterious effect these moves have on the state’s economy and finances is wildly overstated – because revenue from these taxes is growing, not shrinking. Collections from these taxes have grown by 44 percent in the past 13 years,[14] and the state budget Gov. Christie proposed four months ago for the fiscal year that starts July 1 anticipates even more revenue from these taxes – an all-time high of $848 million.[15] The Office of Legislative Services 2017 estimate is now even higher, at $880 million.[16]

‘Income Migration’ Claims Are Inaccurate

The same group’s contention that New Jersey’s tax rates have created economic damage due to the so-called loss of $18 billion in New Jersey income between 2004 and 2013 is also wrong.

Some context is instructive.

Though 18 billion of anything sounds significant, the shock value diminishes once the income of the state as a whole is taken into account. During these same 10 years, the amount of income reported annually in the state grew by $103 billion, adding up to an impressive $2.5 trillion for the period as a whole. The supposed “loss” of $18 billion is a mere 0.7 percent of the total household income generated in New Jersey from 2004 through 2013.

So it’s barely a sliver when compared to the state’s entire economic pie. But the real number is even less than that because the $18 billion figure ignores what really happens to personal income when someone moves out of the state.

The vast majority of people actually don’t take their income with them to a new state – because they can’t. When people make an interstate move, they usually leave their job to take another, and the income they made in their previous job typically goes to the person who replaces them. That state income essentially stays put, which explains why New Jersey’s overall income reported each year grew significantly at the same time we “lost” that $18 billion.[17]

The same holds true for business owners if they leave the state. The money their business made goes to the new owner of the business if the old owner sold it, or other in-state businesses that pick up the customers of the one that left. If a doctor or a plumber or the owner of a restaurant leaves New Jersey, the patents and clients and customers don’t leave too.

For those moving out of state upon retirement, it is equally misleading to claim that New Jersey’s economy loses income equal to the person’s pre-retirement salary, because their income also would have declined if they had retired in New Jersey.

And in today’s mobile, technological age, some people may leave the state but continue to work or own a business in New Jersey. If so, they continue to contribute to the economy and pay taxes, though perhaps not as much as before their move. To categorize all of their income as “lost” to the economy of the state from which they moved is an exaggeration.

Instead of focusing on misleading claims about tax-motivated movement from New Jersey, policymakers should focus on improving policies that grow the incomes of current and future residents and the state economy at large. Deep cuts to – or outright repeals of – taxes on inherited wealth only leave the state with fewer resources to support colleges and universities, parks, roads, public safety and other foundations of the state’s prosperity. These are the things that make New Jersey a place where businesses want to invest and where people want to live and work.

Cutting taxes out of fear that wealthy people will leave New Jersey – and that they will take piles of money with them – is like a well-aimed shot in the foot. With no credible evidence that taxes dictate where people live – and lots of evidence that they don’t – policymakers should not forfeit a significant amount of revenue that the Garden State cannot afford to lose to forestall the loss of income tax revenue from a small group of people.

Endnotes

[1] The Center on Budget and Policy Priorities, State Taxes Have a Negligible Impact on Americans’ Interstate Moves, May 2014.
[2] Tax Policy Issues, Why People Use IRS Migration Data, March 2016.
[3] For an example of the misuse of this data, see NJBIA’s Outmigration by the Numbers: How Do We Stop the Exodus?
[4] Ibid 1
[5] Ibid 1
[6] Ibid 1
[7] American Sociological Review, Millionaire Migration and Taxation of the Elite: Evidence from Administrative Data, June 2016.
[8] National Tax Journal, Millionaire Migration and State Taxation of Top Incomes: Evidence from a Natural Experiment, June 2011.
[9] National Tax Journal, No Country for Old Men (Or Women): Do State Tax Policies Drive Away the Elderly?, June 2012.
[10] Brookings Institution, Sun Belt Migration Reviving, New Census Data Show, January 2016.
[11] New Jersey Business & Industry Association, Outmigration by the Numbers: How Do We Stop the Exodus?, February 2016.
[12] Phoenix Marketing International, 2015 Market Sizing Update & Millionaires By State Ranking, January 2016 and Ranking of U.S. States By Millionaires Per Capita 2006-2013, January 2014.
[13] NJPP analysis of New Jersey Comprehensive Annual Financial Reports, available at http://www.nj.gov/treasury/omb/publications/archives.shtml
[14] Ibid 13
[15] State of New Jersey, The Governor’s FY2017 Budget Summary, February 2016.
[16] New Jersey Office of Legislative Services, Remarks of Frank Haines, Legislative Budget and Finance Officer to the Senate Budget and Appropriations Committee, May 2016.
[17] The Center on Budget and Policy Priorities, State “Income Migration” Claims Are Deeply Flawed, October 2014.

‘Combined Reporting’ is a Pragmatic Corporate Tax Reform That Will Help New Jersey

Posted on June 6, 2016October 11, 2020 by Sheila Reynertson

This written testimony, on S-982, will be delivered to members of the Senate Budget and Appropriations Committee today.

This common-sense legislation to implement combined reporting is a matter of tax fairness for New Jersey businesses that don’t have the ability to hide income in out-of-state tax shelters. It is also a matter of collecting New Jersey’s fair share of corporate tax income – up to an additional $290 million, according to OLS – to help invest in the building blocks of a strong, healthy economy.

Now is the time to update our corporate tax code and get in line with the 25 other “combined reporting” states, which include every single state in the Northeast.

When New Jersey’s legislature last addressed business tax reform in 2002, combined reporting was mostly left off the table. And an appointed commission assigned to review the new law essentially tabled the possibility of expanding combined reporting. At that time, only 16 states had fully adopted combined reporting. Since then, 9 more states plus Washington D.C. have passed legislation to require this pragmatic corporate tax policy.

These states recognized that the failure to include combined reporting in their corporate income tax structures gives profitable multistate corporations free rein to artificially shift income out of the state and avoid paying taxes. Combined reporting uniformly stops these corporations from taking advantage of the tax loopholes that have remained in place, and new ones that corporate accountants may come up with in the future.

Claims that this tax policy is too burdensome for these corporations are unfounded. 94 percent of New Jersey’s largest employers already maintain facilities in at least one combined reporting state. The continued willingness of these large corporations to maintain operations and even expand business in combined reporting states speaks volumes about the neutral impact this tax policy has on economic development. For these corporations, combined reporting is nothing out of the ordinary and is accepted as another cost of doing business.

Expanding combined reporting in New Jersey would level the playing field for all businesses in New Jersey while increasing the resources that states need to be able to invest in vital services like higher education, transportation infrastructure and public safety – services that all businesses rely upon and consider when making long-term plans. A diverse group of 37 leading New Jersey organizations – from advocacy to labor to environmental to faith groups – understand this need and have asked the legislature to implement this policy in a letter of support (see attached).

While the benefits of combined reporting for New Jersey are clear, some opponents suggest this reform would have a number of harmful effects. But, on the whole, that’s not the case. Specifically, here is what combined reporting would not do for New Jersey.

It would not harm economic growth.

Combined reporting has become so commonplace that any arguments that it would harm New Jersey’s economy make little sense, and aren’t supported by any evidence. States around the country – with booming and sluggish economies – have combined reporting. In fact, of the 10 states with the fastest post-recession job growth – from North Dakota to California to Texas to Alaska – 9 have this policy. The only one that doesn’t, Washington state, isn’t able to adopt combined reporting because it doesn’t have a corporate income tax. Of the 10 states with the slowest growth over the same time – including New Jersey – only 4 have adopted combined reporting.

It’s no wonder this is the case. State and local taxes paid by corporations average less than three percent of total corporate expenses, with state corporate income taxes representing less than 10 percent of that three percent, on average. So it is highly unlikely that the adoption of combined reporting would have a significant enough impact on most corporations’ bottom lines to affect decisions about whether to invest in New Jersey; those decisions will continue to be driven by the fundamental economics of the investment.

It would not lead to widespread lawsuits.

The US Supreme Court has rejected the claim that combined reporting unfairly taxes corporate income earned outside the taxing state and has twice upheld combined reporting as a fair and legal means of taxation. The proposed bill is modeled after legislation developed by the Multistate Tax Commission and includes court-approved model language. With 25 states now having enacted this common-sense policy, large multistate corporations view it as nothing out of the ordinary and accept it as another cost of doing business.

It would not be an administrative burden for the Treasury Department.

The adoption of comprehensive combined reporting will require some effort to educate state personnel and taxpayers alike, but by no means will it be an enormous administrative burden. Keep in mind: it is not a completely new situation for the Treasury Department because we already require casinos to report income in this matter. What’s more, assistance is available from the Multistate Tax Commission to help state auditors get up to speed.

It is important to remember that multi-entity corporate groups are the only ones affected by combined reporting and the very small increase in complexity is well justified by the need to stop abusive corporate tax sheltering in New Jersey.

Reforming New Jersey’s Subsidy Law: Four Fixes Part of New Legislative Proposal

Posted on June 2, 2016October 11, 2020 by Jon Whiten

Update, June 3: An amended version of this bill – without the provision on inverted corporations – cleared committee yesterday.

This written testimony, on A-328, will be delivered to members of the Assembly Commerce and Economic Development Committee today.

Members of the committee, thank you for the opportunity to submit this written testimony outlining New Jersey Policy Perspective’s strong support of the modest, common-sense reforms put forth in A-328.

This legislation brings four important fixes to New Jersey’s tax subsidy programs:

1. Restoring Financial Integrity to the ‘Net Benefits Test’

As you are aware, the Economic Opportunity Act of 2013 made sweeping changes to New Jersey’s tax subsidy programs. While some of those changes were positive, on the whole the legislation greatly expanded the size and scope of these offerings while eliminating several key financial protections for taxpayers and the State of New Jersey. A-328 represents a partial course correction, in that it eliminates some of the most egregious taxpayer risk.

It does so by restoring financial integrity to what’s known as the “net benefits test.” This is the formula the state uses to estimate the economic benefits of any proposed tax break, using the number of proposed jobs, their promised wages and other factors. When designed properly, this is a basic taxpayer protection that ensures the state isn’t losing money on an incentive deal. Problem is, in many cases under the EOA, the test offers little or no taxpayer protection.

Before 2013, to be approved for a tax break, a Grow New Jersey project had to deliver a benefit to the state of at least 110 percent – in other words, 10 percent more than the dollar value of the subsidy – over the same period (usually 15 years) that the company was committed to keeping the jobs in-state. If the corporation didn’t meet those promised obligations, it would receive less of a tax break, or none at all.

But now, a Grow New Jersey project in Camden need only deliver a 100 percent benefit – in other words, break even – over 35 years. And the corporation is obligated to deliver the proposed jobs and economic activity for, at most, only 15 years. After that, it can move, slash its workforce, cut pay across the board, or threaten to move in order to receive yet another tax break – and the state would have no recourse to claw back any of the tax credits that had already been claimed.

As a result, when taken together, the 17 Grow New Jersey projects approved for Camden so far actually come with a risk to the state of $273 million, according to the Economic Development Authority’s own numbers, which NJPP has obtained through the Open Public Records Act. That stands in stark contrast to the “net benefit” of $529 million that is officially on the books and created by this implausible and unrealistic economic estimating formula.

And Camden isn’t the only area where a corporation could receive an incredibly lopsided benefit. In the four other cities the state considers to be most distressed – Atlantic City, Passaic, Paterson and Trenton – a project’s benefits must equal 110 percent of the tax break but are estimated over 30 years, which still creates a significant imbalance between taxpayer and corporate interests.

A-328 corrects this imbalance by ensuring that the net benefits test corresponds to the number of years the corporation is committed by statute to stay in the state. This would be a big step towards good government and financial responsibility, and a return to the common-sense practices employed before extending tax breaks in the past.

2. Ensuring Fair Wages

A key positive provision of the Economic Opportunity Act of 2013 bill ensured that custodial, security and building maintenance workers on any project or development that received tax credits under Grow New Jersey or the ERG program be paid no less than the prevailing wage for that industry or sector.

Unfortunately, this was the only provision of the original legislation that the governor conditionally vetoed, and it never became a reality. As a result, the State of the New Jersey is at risk of subsidizing unlivable wages related to many of these projects. A-328 would add this provision back to the legislation, and ensure that workers involved in all aspects of these subsidized projects are paid fair wages.

3. Preventing Extra Rewards for Some Known Federal Tax Dodgers

This legislation would also bar any so-called “inverted” corporation from being able to receive state tax breaks. Inversions are when a larger U.S. corporation merges with a smaller foreign company to avoid U.S. taxes. This practice works wonders for corporate bottom lines but harmfully erodes the federal tax base and limits the government’s ability to invest in the public goods that grow the nation’s economy. Basically, company management stays put, taking advantage of America’s highly educated workforce, patent protections and transportation infrastructure – without helping to pay for it.

While this is largely a federal tax issue, and while recent U.S. Treasury rules may start to limit the flow of new inversions, here’s no reason New Jersey policymakers should reward corporations dodging federal taxes with additional tax breaks.

Barring them from doing so would prevent a double whammy for New Jersey: a company’s federal tax avoidance produces a lower state tax base, which is again reduced by generous tax breaks handed out by the Economic Development Authority. It would also revoke already granted incentives to companies if they choose to invert while receiving the state subsidy, and force those companies to return their incentive to New Jersey’s taxpayers.

While this policy change can’t change federal tax policy on inversions, it is a small but important step to protect New Jersey’s tax base and limit the state’s rewards for harmful corporate behavior.

4. Ensuring Comprehensive Review & Analysis

Last, but certainly not least, this legislation would ensure that the state provide essential information on the outcomes of these tax breaks – which total over $4 billion and growing in just two and a half years since the enactment of the Economic Opportunity Act – to enable a fair and comprehensive evaluation of these programs’ efficacy. While the EDA has taken some positive steps in this direction, including contracting with the Bloustein School at Rutgers University to analyze these subsidy programs, more certainly could be done. At the very least, A-328 would codify the requirement that such an analysis be done.

In conclusion, this legislation represents a smart, modest step towards more financial responsibility, better outcomes for all workers and greater taxpayer protection. We applaud it as a first step, but suggest that much more should be done, including restoring spending caps to Grow New Jersey, lessening the focus on shifting jobs within the state and disallowing corporations from selling these tax credits on secondary financial markets. NJPP is available and willing to partner with any legislator who’d like to discuss further reforms. Thank you.

Blueprint for Common-Sense Corporate Tax Reform

Posted on May 26, 2016October 11, 2020 by Sheila Reynertson

This op-ed appeared in the May 26, 2016 edition of the Bergen Record.

For the fourth time in six years, New Jersey is facing a budget gap with just a few months to close it. Last week we learned that the revenues expected over the next 14 months are short by at least $1 billion, mostly due to less than stellar personal income tax collections in April.

But while the personal income tax shortfall got the most attention, corporate income tax collections are also a problem, and were also downgraded by nonpartisan legislative analysts, falling short by $206 million. The Christie administration, though, expects corporate income taxes to remain flat – thanks to a little old-fashioned can-kicking.

To keep corporate collections from going into the red in 2017, the administration recommends again delaying payments of business tax subsidies to corporations that have now been waiting for years. This gimmick, which comes on top of an earlier conversion of these subsidy rebates into tax credits, is expected to save the state $135 million. Pro tip: If you’re trying to attract business to New Jersey with a huge surge in these subsidies, you might want to be prepared to pay for them when the bills come due.

Here’s another pro tip: There is a much better way to boost corporate tax collections while leveling the playing field for small, local businesses. It’s called “combined reporting,” and it’s a common-sense tax policy now employed by 25 states plus the District of Columbia. By updating the corporate tax code and closing a variety of remaining corporate tax loopholes, policymakers could ensure that all New Jersey businesses are paying their fair share – and raise up to $290 million a year in new revenue doing it.

As it stands, local businesses are more likely to have to pay taxes on all their profits, because, unlike multistate firms, they have nowhere to shift them. Without combined reporting, large multistate corporations end up paying income tax at a lower effective tax rate than small businesses. Recent legislation introduced by Senators Lesniak, Sarlo and Greenstein and Assembly members Holley, Eustace and McKnight would change that by expanding combined reporting, which treats the parent company and subsidiaries of multistate corporations as one entity for state corporate income tax purposes. A diverse group of 37 leading New Jersey organizations – from advocacy to labor to environmental to faith – have asked the legislature to implement this policy, and to do it soon.

Some major multistate corporations and business lobbyists oppose combined reporting, claiming it leads to costly tax compliance burdens. These corporate interests also threaten that combined reporting could lead to job losses if major employers leave the state or reject it for future investments. However, these stale concerns ring hollow because most of New Jersey’s largest employers – 92 of 98 – already operate in combined reporting states and, in some cases, have been doing so for decades.

While kicking the can down the road might help the Christie administration plug leaky corporate tax collections in the short term, it is not sustainable. Corporate taxes will continue to be a sticky spot in the budget for years to come, thanks to the record levels of lucrative tax subsidies awarded by the state over the past few years. Ignoring this no-brainer corporate tax reform sends a lopsided message to New Jersey businesses that have consistently played by the rules. It’s time to realign the corporate tax code in the name of genuine tax fairness.

NJPP’s Brandon McKoy Discusses Legalized Marijuana’s Revenue Potential

Posted on May 26, 2016October 11, 2020 by NJPP Staff

When New Jersey United for Marijuana Reform and New Jersey Policy Perspective partnered earlier this week to release a new report on the positive revenue implications of legalizing marijuana in New Jersey, NJTV News was there.

As NJTV notes, the co-authored report estimates slightly more than $300 million a year in revenue from a fully phased-in legal and regulated market. The trick is undercutting the illegal market by keeping tax rates low to start.

“You will get people comfortable in participating in the legal market and they will come to be familiar with and appreciate the benefits of it being a safe place, ensuring the health and the safety of the product,” said NJPP Policy Analyst Brandon McKoy.

In Every County, Very Few New Jerseyans Owe Estate Tax

Posted on May 25, 2016October 11, 2020 by Jon Whiten

FOR IMMEDIATE RELEASE: May 25, 2016
Contact: Jon Whiten, NJPP: 609-393-1145 ext. 15 | whiten@njpp.org

Report: In Every County, Very Few New Jerseyans Owe Estate Tax

Boosting the EITC a Better Option for Tax Fairness

In 20 of New Jersey’s 21 counties, fewer than 400 heirs have estates large enough to owe the estate tax in any given year – and in the majority of counties, including every one in the southern part of the state, fewer than 200 heirs owe the tax, according to a new reportreleased today by New Jersey Policy Perspective (NJPP).

The report comes a week after the news broke that New Jersey is facing a $1 billion budget hole in the next 14 months, and in the midst of an ongoing campaign by the governor, some legislators and business lobbying groups to eliminate this tax on inherited wealth. Despite the fact that doing so would cost New Jersey $550 million in annual revenue, last week a leading Senator behind this push said efforts to eliminate the tax would continue, despite the state’s dire and worsening financial condition.

“Seeing how few people actually owe estate tax in each county reinforces the fact that wiping it off the books would benefit only the fortunate few and do actual harm to rest of New Jerseyans,” said Sheila Reynertson, NJPP’s Senior Policy Analyst and author of the report. “At a time when we get warning sign after warning sign about how broke New Jersey is, pulling $550 million a year out of our coffers is a big step in the wrong direction.”

The share of heirs that owe estate tax varies by county, from a low of 2.2 percent in densely populated Hudson County to a high of 9.1 percent in wealthy Morris and Somerset Counties. When fewer than 1 in 10 heirs in New Jersey’s wealthiest counties owe the estate tax, it’s laughable to assert that eliminating the tax will help the “middle class.”

Supporters of eliminating New Jersey’s estate tax think it must be part of a package deal to increase the fuel taxes needed to repair and maintain New Jersey’s deteriorating highway and transit networks in the name of so-called “tax fairness.” But eliminating the estate tax would leave New Jersey with $550 million less each year, seriously threatening support for things like public colleges, safe communities and health care.

If real “tax fairness” is the goal, it would be better served by enacting an increase in the state’s Earned Income Tax Credit, which would help offset the fact that low-income and working-class New Jerseyans would pay a higher share of their yearly earnings in fuel taxes than would more well-off households.

And the number of EITC recipients dwarfs the number of estate tax payers. The estate tax repeal would give a tax break to just 3,000 to 4,000 well-off households per year, the majority of whom live in a handful of New Jersey’s wealthier counties. Raising the state EITC would help nearly 600,000 households across the entire state – and cost about one-tenth as much as eliminating the estate tax.

“Eliminating the estate tax in no way guarantees that elderly residents will stick around to enjoy New Jersey winters. That’s fantasy,” said Gordon MacInnes, NJPP’s President. “But raising the EITC guarantees immediate fairness for low-income and working-class New Jerseyans who would actually notice the hit to their wallets from higher fuel taxes, unlike the state’s wealthiest households.”

Topic Category: Tax and Budget