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In Every County, Very Few New Jerseyans Owe Estate Tax

Posted on May 25, 2016October 11, 2020 by Sheila Reynertson

To download a PDF of this Fast Facts, click here.

Eliminating New Jersey’s estate tax would seriously threaten support for the foundations of the state’s prosperity – like public colleges, safe communities and health care – all to save money for a very few of the state’s wealthiest households.

Each year about 70,000 people in New Jersey die. On average, fewer than 4,000 of the estates they leave – just 4 or 5 percent – owe any estate tax. These estates worth more than $675,000 belong to New Jersey’s wealthiest households.[1]

This means that in 20 of 21 New Jersey counties, fewer than 400 estates are large enough to owe the New Jersey estate tax in any given year, according to state Division of Taxation data.[2] This ranges between 2.2 percent (in Hudson County) and 9.1 percent (in Morris and Somerset Counties) of annual deaths in each county.[3]

The taxes that these heirs and heiresses pay on the wealth they inherit are an important – and growing – source of revenue that pays for priorities that benefit all New Jerseyans and help create more opportunities and shared prosperity. Eliminating the estate tax would leave New Jersey with $550 million less each year to help make our colleges affordable, our water and air cleaner, and our safety net stronger, according to independent legislative estimates.[4]

The dearth of residents across the state who owe the estate tax calls into question the claim that its elimination qualifies as “tax fairness” that would help the middle class. Rather, a look at who actually pays estate tax reinforces that wiping it off the books would benefit the fortunate few and do actual harm to rest of New Jerseyans.

The facts also debunk another claim made by proponents of eliminating the estate tax: that the number of New Jersey taxpayers subject to the tax is low because so many older people leave the state to avoid the tax. In fact, the revenue collected from New Jersey’s estate tax, and the related but separate inheritance tax, has grown by 44 percent in the past 13 years.[5] It is unlikely this would happen if people are fleeing New Jersey to avoid these taxes. And the state budget Gov. Christie proposed three months ago for the fiscal year that starts July 1 anticipates even more revenue from these taxes – an all-time high of $848 million.[6] The Office of Legislative Services 2017 estimate is now even higher, at $880 million.[7]

Some 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. If real “tax fairness” is the goal, it would be better served by enacting an increase in the state’s Earned Income Tax Credit. Raising the state EITC would help nearly 600,000 households, all of which include people who work but are paid wages too low to make ends meet. This 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.[8] Increasing the EITC would cost the state about one-tenth as much as eliminating the estate tax, and it would help far more New Jerseyans in every county.

Endnotes

[1] New Jersey Policy Perspective, Eliminating the Estate Tax: Like Robin Hood in Reverse, January 2016.
[2] Using the Open Public Records Act, NJPP obtained information from the Division of Taxation that breaks down how many taxpayers in every county paid the estate tax in Fiscal Years 2013, 2014 and 2015. We use a three-year average of those figures in this analysis.
[3] NJPP analysis of number of deaths per county 2011-2013, as reported in the New Jersey Department of Health’s New Jersey Death Certificate Database, available at https://www26.state.nj.us/doh-shad/resources/BirthDeathData.html
[4] New Jersey Office of Legislative Services, Legislative Fiscal Estimate of S-1728, March 2016.
[5] NJPP analysis of annual Comprehensive Annual Financial Reports, available at http://www.nj.gov/treasury/omb/publications/archives.shtml
[6] State of New Jersey, The Governor’s FY2017 Budget Summary, February 2016.
[7] New Jersey Office of Legislative Services, Remarks of Frank Haines, Legislative Budget and Finance Officer to the Senate Budget and Appropriations Committee, May 2016.
[8] New Jersey Policy Perspective, Tax Increase to Fund Transportation Should Be Combined with Credit to Help Low-Income Families, January 2015.

Marijuana Legalization Could Bring $300 Million in Tax Revenue to New Jersey

Posted on May 24, 2016October 11, 2020 by Jon Whiten

New Jersey would bring in hundreds of millions of dollars in new revenue by legalizing marijuana, a new report released by New Jersey Policy Perspective and New Jersey United for Marijuana Reform has found. Legalization, taxation, and regulation of marijuana for use by adults aged 21 and older would ultimately add an estimated $300 million in sales tax to state coffers rather than divert consumers to the illegal market, the two policy-focused groups said at a Trenton press conference.

“The lessons from around the country are loud and clear: marijuana legalization makes fiscal sense, and it makes practical sense,” said New Jersey Policy Perspective Policy Analyst Brandon McKoy, a co-author of the report (pictured at right speaking at this morning’s press conference). “Expanding economic opportunities and addressing our persistent budget deficit aren’t the only reasons to legalize and regulate marijuana, but they are extremely persuasive ones.”

The report estimates that New Jersey would bring in at least $300 million annually if marijuana legalization were fully implemented, using graduated tax increases over a three-year period, going from 5 percent, to 15 percent, to the final rate of 25 percent. The first-of-its-kind report in New Jersey relies on conservative estimates, predicting the tax revenue only from marijuana sales. The report’s projections are based on the experiences of other states, current information on marijuana users in New Jersey and the surrounding area, current pricing, and the tax structure of other states as they relate to New Jersey’s interests.

Including a small percentage of New Yorkers and Pennsylvanians from counties neighboring New Jersey who are expected to participate in the legal, regulated market, the state could take in approximately $305.4 million once the sales tax is fully scaled to 25 percent, the report said. The report estimates that approximately 343,100 New Jerseyans would participate in a legal marketplace, spending $1.2 billion each year. Currently, New Jerseyans spend more than $850 million on marijuana each year. The calculation of tax revenue was based on a price of $350 per ounce, similar to the current estimated price of $343 per ounce in New Jersey.

Legalization would bring other economic benefits not covered in the report, such as job creation, growth in business, research and development, and boosts in property, agricultural, business, and income taxes. In addition, it would increase public safety, protect young people, save resources, advance racial justice, bolster public health, and reduce the strain on the police, corrections, and the criminal justice system, the report argues. New Jersey arrests more people for marijuana possession each year than for any other crime. A June 2015 Rutgers-Eagleton poll found that 58 percent of New Jerseyans support legalizing, taxing and regulating marijuana for use by adults aged 21 and older.

“Facing yet another budget shortfall, New Jersey is again confronted with the untenable choice of either further draconian cuts or massive tax increases in order to balance the state budget,” said New Jersey United for Marijuana Steering Committee member Bill Caruso, Of Counsel at Archer & Grenier and former Executive Director of the New Jersey Assembly. “But, we have the ability to generate hundreds of millions of dollars in new revenue and create tremendous economic opportunities in our state by capitalizing on New Jersey’s geographic location and our world-class education and health care infrastructure. It’s time for New Jersey to get off the sidelines and into the game to join success stories like Colorado and Washington State. For every day that passes without safe and responsible legalization, taxation, and regulation of marijuana in our state, we are leaving money on the table.”

To set up a legal, regulated market and increase public health, the report recommends:

• Introducing graduated tax increases in the first three years

• Building flexibility into the tax rate to account for the challenges of transitioning from an illegal, unregulated market to a legal, regulated one

• Creating a board or committee focused on calculating the right tax rate for New Jersey, preventing use by individuals under 21, undercutting the prices of the illegal market, and maximizing revenue for the state

• Using tax revenue for critical state needs, such as expansion of drug-treatment, drug-abuse prevention, and justice reinvestment

“New Jersey can’t afford to wait – it’s time to legalize, tax, and regulate marijuana,” said Ari Rosmarin, a co-author and the Public Policy Director of the American Civil Liberties Union of New Jersey, which sits on the steering committee of New Jersey United for Marijuana Reform. “With just one vote, the Legislature can raise hundreds of millions of dollars annually, help end a civil rights injustice, and make sure that no more New Jerseyans see their lives ruined for something every president in the last 24 years has done. It’s time for common sense, and that means ending prohibition again.”

Four states and Washington, D.C., have fully legalized marijuana for adult use, and Nevada voters will consider a ballot measure in November to legalize marijuana. Twenty-four states, plus Washington, D.C., and Guam, have instituted medical marijuana programs, and 17 states have decriminalized marijuana possession but not legalized it. States that have legalized marijuana have seen revenues outpace initial estimates. Colorado is on pace to bring in $140 million in tax revenue from marijuana this year, according to the Tax Foundation. According to the Oregon Employment Department, the state has added 2,165 new jobs since its legal marijuana program launched in October 2015, and the sector is expected to see significant additional growth in the coming months.

Latest BEIP Proposal is Proof New Jersey’s Surge in Corporate Tax Subsidies is Unaffordable

Posted on May 19, 2016October 11, 2020 by Jon Whiten

Yesterday the Christie administration proposed to “slow the implementation schedule of the conversion of BEIP grants into tax credits” as part of its plan to close a looming 2017 budget gap. This is just more proof that New Jersey’s surge in business tax subsidies is simply unaffordable.

This proposal – combined with projections released last week by the EDA showing a growing budget hole from BEIP and other subsidy programs – clearly shows that policymakers need to rethink this flawed economic development strategy, which favors short-term thinking over long-term prosperity.

When the state couldn’t afford to keep its commitments to these businesses, it converted the annual payments from budget line items to future tax credits, which kicked the can down the road and made the dollars lost to these subsidies harder to see.

Now the state can’t even afford the anticipated first-year loss from the tax credits, and is looking at kicking the can even further down the road.

If policymakers want to offer such lucrative tax breaks to corporations, they should make the hard choices and find the money to pay for them – not merely push the costs off to future policymakers, who will be forced to contend with an ever-shrinking pool of revenues to pay for pressing state needs.

New Jersey Should Give All Families a Shot at Success By Boosting Basic Assistance

Posted on May 16, 2016October 11, 2020 by Raymond Castro

This op-ed appeared in the May 15, 2016 edition of the Star-Ledger.

With a record amount of wealth held by a relative handful of households while millions struggle to make ends meet, New Jersey isn’t a state where all families have a clear shot at success.

It’s time to reverse course, starting with those families whose kids face the toughest times by partially restoring the basic assistance they need to try to keep their heads above water.

Three factors drive New Jersey’s growing income inequality: nearly all the gains since the Great Recession have gone to the very wealthy, middle-income families have seen their incomes decline and the state has cut support for struggling families. Six years into the recovery, poverty is still the highest it has been in New Jersey in 50 years and what’s called “deep child poverty” – kids living in households earning less than $10,000 a year for a family of three – has continued to increase by a whopping 26 percent.

One of the main causes for deep child poverty is the erosion of basic assistance to New Jersey families facing the biggest economic challenges. Temporary Assistance to Needy Families (TANF) has not increased since 1987. If the maximum assistance payment of $424 a month for a family of three had kept up with the cost of living over those 29 years it would be $889 today. In 1989 the grant could at least cover nearly three quarters of the fair market rent for a two-bedroom apartment. Now, it has eroded to where it covers about a third. That means most TANF families can’t pay their rent, forcing many of them into shelters and ramshackle motels at far greater public expense, not to mention the trauma for children who lack stable homes.

For people who face it daily, poverty is more than a statistic. It’s a dangerous condition that significantly harms children’s development, reducing their ability to learn in school or hold a job when they become an adult. The stress from poverty literally rewires a child’s brain, causing permanent damage, research has found. These problems are greatest for the youngest children – and about half of all children in TANF in New Jersey are five or under. And child poverty is not only harmful to those who have to live with it every day – it is also very expensive for all of us — costing New Jersey about $13 billion annually in reduced productivity, poor health and crime. In the words of Frederick Douglass, “it is easier to build strong children than to repair broken men.”

Other states are starting to put all this together and deciding to invest in children now rather than pay much more later. Since 2013 alone, 11 states have increased TANF support. New Jersey’s assistance is the lowest in the Northeast and is now below the national average. And when the cost of housing is considered, 40 states – including very poor states like West Virginia and Kentucky – offer more adequate TANF support to struggling families than New Jersey. New Jersey’s TANF benefit has shrunk to 25 percent of the federal poverty level from 61 percent in 1981. What an embarrassment for the second richest state in the nation.

The erosion of TANF support and more restrictive eligibility means that families who get support find it doesn’t go far at all and more families facing desperate times get nothing at all. Since 1988, enrollment for parents and children is down 81 percent even as poverty has increased. The percentage of poor families with children participating in TANF in New Jersey has dropped much faster than the national average. Tragically, all this means that over 80 percent of all New Jersey children living in poverty are not receiving any help.

As part of Assembly Speaker Prieto’s efforts to fight poverty, he and State Senator Vitale have introduced much-needed legislation that begins to address these problems. It would boost TANF assistance by 30 percent over three years. And by requiring annual cost-of-living adjustments, it would also assure that state inaction would no longer deepen child poverty.

To create a state that works for all of us, New Jersey must redirect its policy priorities, away from lucrative tax breaks to corporations and the rich and towards struggling families who only want a fair shot. Creating equal opportunity for all is the key to prosperity. It can only be achieved if New Jersey begins by at least helping those most in need. This important piece of legislation from Speaker Prieto and Senator Vitale would help New Jersey achieve that essential goal.

Corporate Subsidies Keep Flowing as New Estimates Confirm They’re Creating a Growing Long-Term Budget Hole

Posted on May 13, 2016October 11, 2020 by Jon Whiten

Today New Jersey will consider – and likely approve – $111 million in new tax breaks for corporations as the state’s surge in these subsidies continues.

If all of these tax breaks are approved, New Jersey will have OK’ed over $6.8 billion in subsidies since January 2010 – $4.2 billion of which has been approved since December 2013 alone under the misleadingly-named “Economic Opportunity Act.”

This flamboyant over-reliance on tax breaks to try to boost the state’s economy has done little to move the economic needle or grow good jobs. New Jersey, with among the most lucrative corporate subsidy offerings in the country, is one of just 10 states that hasn’t yet recovered all the jobs it has lost since the Great Recession’s official start in December 2007. This surge in subsidies is creating a long-term and growing economic drag that policymakers will have to grapple with for at least the next 15 years as the backlog of tax credits is paid out.

The regular monthly meeting of the state Economic Development Authority (EDA) comes after EDA officials appeared earlier this week in front of the legislative budget committees and released new estimates showing the damaging revenue consequences of already-approved subsidies.

These tax breaks will cost New Jersey an estimated $2.8 billion in fiscal years 2016 through 2020 alone, or an average of $550 million a year.

That’s a substantial amount of revenue that could be put to much better use by investing in the assets that, unlike tax breaks, are proven to grow New Jersey’s economy, like higher education or transportation, or providing a stronger safety net for the growing numbers of working New Jersey families and children who are living in poverty.

And the negative impact on New Jersey’s finances is only going to grow after 2020, as more of the corporations who’ve been approved for tax breaks in recent years cash in. Of the $4.1 billion in tax credits approved between December 2013 and April 2016, for example, only $12.9 million – or 0.3% – has been redeemed to date, according to the EDA.

The approval of more than $100 million in new tax subsidies in a month has become so commonplace in New Jersey, it’s easy to dismiss it as routine business. But what we’re in the midst of is far from routine, and comes with crippling consequences for the Garden State.

New Jersey is already in an enormous financial hole, unable to meet its obligations, provide essential services for all who need them and maintain adequate investment in its key economic assets. And every month that our leaders continue down this path of unbridled corporate largesse, the deeper and wider the hole gets. It’s time for lawmakers to observe the cardinal rule of holes: when you’re in one, stop digging.

UP TO DATE DATA ON NEW JERSEY & CORPORATE TAX SUBSIDIES

(as of May 12 – today’s approvals or modifications will change these totals)

The 2010s Have Seen a Subsidy Surge

• $6.7 billion: The dollar amount of total business tax breaks approved by New Jersey since January 2010. This is up from $1.2 billion the entire previous decade.

• $88 million: The monthly rate of business tax breaks awarded since January 2010. This is up from $10.1 million in the 2000s.

• $59,700: The cost per job of these subsidies since January 2010. This is up from $16,400 in the 2000s.

2013 Legislative Overhaul Opened the Floodgates Even Wider

• $4.1 billion: The dollar amount of total business tax breaks approved by New Jersey since December 2013, when the 2013 legislative changes went into effect.

• $140.9 million: The monthly rate of business tax breaks awarded since December 2013.

• $83,000: The cost per job of these subsidies since December 2013.

New National Report Underscores Why New Jersey Needs to Preserve its Estate Tax

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

Some New Jersey lawmakers are trying to take away one of the state’s most effective tools for both reducing inequality and building a thriving state economy at a time when the Garden State cannot afford to lose it.

The legislature is considering eliminating the estate tax as a bargaining chip to make a much-needed but unpopular gas tax increase more palatable. That would have disastrous consequences for essential public investments while putting more money into the hands of the state’s most well-off heirs, according to a new report by the Center on Budget and Policy Priorities.

As we have noted, a supermajority of New Jerseyans will never owe estate taxes. The tax, which is levied on all estates valued at more than $675,000, is paid by just 4 percent of estates per year. At a time when the imbalance between the richest and the rest is so extreme, a huge tax break for those at the top would only make this economic inequality worse.

The report also highlights how the estate tax helps – not harms – a state’s economy. Money that is collected through New Jersey’s estate tax helps communities thrive by providing hundreds of millions of dollars for higher education, transportation, health care and safe communities. Eliminating this revenue puts New Jersey’s economic future at risk due to the harm that subsequent service cuts can have on businesses and communities that depend on those services.

The report makes clear that claims that the estate tax harms the state’s economy by causing retirees and others to leave the state are exaggerated and are backed up with no credible evidence to support them. A review of recent studies finds that taxes have little to no effect on whether and where people move, and that the estate tax specifically has a small effect on the residence decisions of the very wealthy elderly. That confirms what we see here in New Jersey, where collections from the estate and inheritance taxes have risen by over 40 percent over the last 13 years. The negative impact of the estate tax, therefore, has only a small effect on a state’s economy and revenue collections – certainly much smaller than the impact of eliminating it.

Policymakers who are concerned about record levels of inequality and making sound investments that benefit all New Jerseyans should take this report to heart, and preserve the estate tax. New Jersey is in no condition to lose it.

Increasing the EITC to 40 Percent Would Boost Working Families & Create True ‘Tax Fairness’

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

The Earned Income Tax Credit is the best tool available to give New Jersey’s working families a shot at success. I want to commend the Senate President for being a champion for these families by pushing to increase New Jersey’s EITC to 40 percent of the federal credit.

The EITC boosts the incomes well over a half-million working families in New Jersey who aren’t paid enough to get by. It’s a proven policy initiated and sustained with strong bipartisan support with decades of success under its belt, and it’s a poverty solution well worth investing in. By boosting these families’ incomes, the EITC lifts – or keeps – many of them out of poverty and, crucially, gives their kids a better short at success later in life. Children from EITC families do better in school, and then have stronger employment prospects and greater earnings potential as they become adults.

And if you want tax fairness, the EITC is the most efficient and effective way to help fix a tax structure that is out of balance.

As it stands now, New Jersey taxpayers who are paid less than $22,000 a year pay the highest share of their income to state and local taxes: 10 percent of their incomes go to pay the tax bills. Meanwhile, the top 1 percent – folks with incomes over $758,000 – pay the least, with just 7.1 percent of their incomes going to taxes.

That’s because, even with a state income tax that is highly progressive and based on the ability to pay, other state and local taxes – namely property, gas and sales taxes – help make New Jersey’s overall state and local tax structure regressive.

If the EITC is increased from 30 to 40 percent, those poorest households would still pay the largest share of their incomes towards taxes, but not by nearly as much.

New Jersey is one of the most expensive states in the country, with housing costs in particular hamstringing the abilities of low-income and working-class families to move into the middle class and provide better opportunities for their children. Thanks to the leadership of the Senate President and the Assembly Speaker, policymakers have the opportunity to give these families a better shot at success – we hope they will seize it.

Over Three Dozen Leading New Jersey Organizations Ask the Legislature for Small-Business Tax Fairness by Closing Corporate Tax Loopholes

Posted on May 4, 2016October 11, 2020 by Jon Whiten

Over Three Dozen Leading New Jersey Organizations Ask the Legislature for Small-Business Tax Fairness by Closing Corporate Tax Loopholes‘Combined reporting,’ a common practice in other states, would also provide resources needed to grow the economy and meet the state’s growing needs

Thirty-seven New Jersey organizations representing hundreds of thousands of state residents are today sending a letter to the state legislature asking lawmakers to promote tax fairness for small, local businesses by closing corporate tax loopholes.

The letter, signed by a spectrum of community, labor, faith, environmental and social justice groups, shows widespread and deep support for what’s known as “combined reporting.” This treats the parent company and subsidiaries of multistate corporations as one entity for state corporate income tax purposes. Their nationwide profits are added together and the state then taxes the appropriate share of the combined income.

With recent enactment in Rhode Island and Connecticut, 25 out of the 45 states that have some form of corporate income taxation, plus the District of Columbia, now mandate combined reporting. In fact, this important reform has become so commonplace in other states that nearly all of New Jersey’s largest employers already use it when filing state taxes elsewhere, according to research by New Jersey Policy Perspective (NJPP), which has led recent efforts to enact combined reporting in New Jersey.

“This letter sends a strong message to New Jersey’s lawmakers: the time to close corporate loopholes is now,” said NJPP Deputy Director Jon Whiten. “The track record from across the nation is abundantly clear: this common-sense reform would help level the playing field for small and local businesses and raise significant new resources that New Jersey could invest in the building blocks of a strong state economy.”

A comprehensive bill to require combined reporting – as introduced by Senators Lesniak, Sarlo and Greenstein and Assembly members Holley, Eustace and McKnight – would raise up to $290 million a year in new corporate business tax revenue, according to the Office of Legislative Services. This shot in the arm is particularly timely, given that corporate tax revenues are flat at best as a result of New Jersey’s recent surge in tax subsidies.

The letter will be sent to all members of the legislature today.

Signers:

American Federation of State, County and Municipal Employees – Council 1

American Federation of Teachers – New Jersey

The Anti-Poverty Network of New Jersey

BlueWave New Jersey

Clean Water Action

Communications Workers of America – New Jersey

Communications Workers of America – Local 1032

Communications Workers of America – Local 1037

Communications Workers of America – Local 1081

Council of New Jersey State College Locals

Drug Policy Alliance

Environment New Jersey

Greater New Jersey Pride at Work

Health Professionals and Allied Employees

Housing and Community Development Network of New Jersey

Ironbound Community Corporation

Latino Action Network

Lutheran Episcopal Advocacy Ministry of New Jersey

The Main Street Alliance of New Jersey

Monarch Housing Associates

National Association of Social Workers – New Jersey

New Jersey Citizen Action

New Jersey Communities United

New Jersey Education Association

New Jersey Policy Perspective

New Jersey Public Interest Research Group

New Jersey Sierra Club

New Jersey State AFL-CIO

New Jersey Tenants Organization

New Jersey Work Environment Council

New Jersey Working Families

SEIU – New Jersey State Council

SEIU – 32 BJ

SEIU – Local 617

SEIU – Workers United

SEIU – Local 518

Unitarian Universalist Legislative Ministry of New Jersey

Tax Breaks or Bust: New Jersey’s Misguided Approach to Economic Development in Camden

Posted on April 26, 2016October 11, 2020 by Jon Whiten

This is a version of remarks presented at the conference, State and Local Economic Development Policy: What Works for Distressed U.S. Cities?, hosted by Rutgers University-Camden and the Scholars Strategy Network on April 19, 2016. A condensed version of this blog ran as an op-ed in the April 27, 2016 edition of the Courier-Post.

In 2013, the governor and legislature cooperated to enact a law that fundamentally rewrote New Jersey’s business tax subsidy programs. Among other things, the overhaul greatly expanded the cost of these programs, loosened standards and minimum requirements for corporations receiving the tax subsidies, and removed safeguards that protected taxpayers. The legislation also heavily favored new projects in Camden, with a special formula that only Camden qualified for that took loose standards, low requirements and big-time financial rewards for corporations to a new level.

The idea was that as one the nation’s most distressed cities – and certainly the most distressed in New Jersey – that Camden needed an extraordinarily large government lever to get private investment flowing into the city.

Since then, we’ve seen more investment coming into Camden than we probably have in decades. Supporters of this strategy like to point to that as success. Case closed.

But the reality is far more complicated, and it raises a host of important economic development policy questions for all of New Jersey.

Do tax breaks really help a distressed city if they aren’t accompanied by public investment in a city’s basic physical, social and economic infrastructure? How generous is too generous, when it comes to tax breaks? What role does the state have in ensuring that these tax breaks come with enforceable corporate requirements for rebuilding a local economy and employing local residents? And, ultimately, who has more power and leverage in this equation: the state (and, by extension, the city), or corporations?

Opening the Floodgates

Since December 2013, the state of New Jersey has approved $1.1 billion in incentives to 17 companies relocating to, or pledging to stay in, Camden.

In return, these corporations are accountable for, frankly, very little. That’s the core problem with how state policymakers have addressed revitalizing Camden through tax incentives: The law governing these subsidies is overly generous to corporations, bares little teeth when it comes to helping the local economy or growing local jobs, and comes with heavy risk to all the taxpayers of New Jersey – which, of course, include the residents and business owners of Camden.

Let’s look first at jobs.

The 17 companies are required to maintain 3,897 jobs in Camden as part of their deal to receive the $1.1 billion. When measured as cost per each job, these Camden deals are literally off the charts, at an average cost of $293,000 for a single job.

But there’s more to this story. Of those 3,897 jobs, only 36% are new to the state of New Jersey. The rest already exist elsewhere in the state, and are already filled by employees. In the case of Camden, most of these so-called “retained” jobs are not only already in the state of New Jersey – they’re already in the Camden metro area, in Cherry Hill, Moorestown and other neighboring towns.

So what’s that do for Camden’s economy? How does that help Camden’s residents who are struggling? Where’s the payoff?

Risky Business in the ‘Net Benefits Test’

Another major problem with New Jersey’s subsidy law as it plays out in Camden is a huge mismatch between the time a company is required to keep its commitment when compared with the time taxpayers must wait for the full benefits that triggered the tax break. The corporation pays lower taxes for ten years, can skedaddle after fifteen years with no penalty, while taxpayers must hold on for 35 years to realize the projected payback..

When a corporation applies for a tax subsidy from New Jersey, the state takes a variety of inputs – like the number of proposed jobs, their promised wages and other factors – and runs them through a formula designed to estimate the economic benefits to the state. This is what’s called the “net benefits test,” and it can be an important protection to taxpayers against really bad deals. But only if it’s designed properly.

In the past, in order to be approved for a tax break, most projects would need 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 that the company was committed to keeping the jobs in-state. This was usually 15 years. If the corporation didn’t meet those promised obligations, it would receive less of a tax break, or none at all.

But now, a project in Camden need only deliver a 100 percent benefit – in other words, break even – over 35 years. But the company is obligated to deliver the proposed jobs and economic activity for only 15 years at most. After that, it can move out of Camden or slash its workforce – and the state would have no recourse to claw back any of the tax credits that have already been issued.

The result is that New Jersey taxpayers are exposed to a huge amount of risk through these Camden projects. While the state touts a net economic benefit of $529 million from the Camden deals, the reality is that New Jersey is at risk of losing $273 million on them because of this one-sided arrangement.

A Case Study: Holtec International

Here is a great example of many of the shortcomings of New Jersey’s law governing these subsidies.

Holtec International was approved for a $260 million tax break to shift some existing New Jersey jobs to Camden and create some new ones at a manufacturing and engineering complex along the Delaware. In announcing the deal, Holtec said it would employ as many as 3,000 at the facility within five years of opening (just this weekend the Inquirer threw out a figure of 10,000 new jobs there). But the company’s deal with the state allows it to get its full tax break for locating a paltry 395 jobs at the facility.

As a result, the Holtec deal puts New Jersey taxpayers at great risk. If the company only met its obligations under the deal and nothing more, the state would lose $106 million – and that’s according to the state’s own estimates.

What’s more, Holtec’s CEO has pledged to hire people from Camden, as well as train local residents in the skills required to work there. This is all great – if it happens. But there are no requirements for the company to do so in order to receive the tax break.

These types of requirements – for local hiring preferences, targeted job training programs, even local beautification or community volunteering – could have, and should have, been written into the law governing these programs. If the state is going so far out on a limb here, putting up $300,000 in taxpayer funds per job, with the rationale that this level of risk is necessary to help Camden turn the corner – shouldn’t it put more community benefits into these tax subsidy deals to actually boost the local economy and help local residents?

On community benefits, number of jobs, taxpayer risk and a handful of other metrics, the state of New Jersey erred too heavily on the side of business interests in creating the framework that governs these tax breaks. As a result, there are no guarantees that this strategy will actually work to significantly boost Camden. Instead, residents of Camden will have to hitch their economic hopes on trickle-down economic development from large office buildings filled mostly with suburban commuters, and promises from big corporations like Holtec. But it didn’t have to be that way, if only policymakers would have designed the state policy in a smarter, tougher, more effective way.

Latest Transportation Funding Proposal Fails the ‘Fairness’ Test

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

This op-ed appeared in the April 24, 2016 edition of the Bergen Record.

There’s good news and bad news when it comes to securing funding for critical improvements and modernization of our roads, bridges, train lines and other transportation assets.

The good news is that there is a strengthening consensus that a significant investment is required within the next few months to salvage the near-broke Transportation Trust Fund. The best source of funding for this investment is raising New Jersey’s taxes on gasoline, which haven’t been increased for 26 years and are the second-lowest in the nation (after oil-rich Alaska).

No one relishes the idea of paying more at the pump. But we either pay there, or we pay more elsewhere: in additional car repairs, in higher transit fares and in countless hours lost to commuting.

And when faced with the dire need to invest in New Jersey’s greatest economic asset – the transportation networks that capitalize on our unmatched location – it’s clear that some leading lawmakers understand the need to fix the problem, and to do it right.

The bad news is that political wheeling and dealing – in the name of so-called “tax fairness” – is getting in the way, with potentially damaging consequences for all of us.

The latest proposal, from Senate Budget Chairman Paul Sarlo, would raise a significant amount of new revenue to pay for transportation investment from a sizable increase in the gasoline tax.

But Sen. Sarlo’s plan also includes big tax cuts that would mostly help the well-off while jeopardizing essential public services and property tax relief:

Eliminating the estate tax, which state officials estimate would drain $550 million a year from the general fund
Raising the exemption level for income taxes paid on retirement income, which state officials estimate would equal 125 million fewer dollars available each year for property tax relief
Creating a state income tax deduction for charitable giving, which – depending on how it is designed – could cost up to $300 million in dollars currently being dedicated to property tax relief

Pairing tax cuts that mostly benefit the wealthy with a tax hike that will hit the poor and working class the hardest is an odd definition of “tax fairness.” It would also make New Jersey’s already precarious financial condition even worse.

Here’s why.

Behind the current push on “tax fairness” is an acknowledgment that many New Jerseyans feel like their taxes are too high. So the idea is simple: raise one tax, cut some others and call it “fair.”

But, like every simple idea, the devil is in the details. Lawmakers are proposing to raise a tax that’s dedicated to funding transportation improvements and “even it out” by cutting taxes that pay for current services and property tax relief. The end result is fewer available dollars to meet the needs of New Jerseyans across the state.

New Jersey already can’t meet its financial obligations, or provide critical services and opportunities for the millions of our neighbors who have fallen on hard economic times. And nearly all of our shared priorities – from good schools to affordable college to clean water and air – are at risk due to chronic underfunding. In this context, the math is simple: There’s no way that New Jersey’s essential services would come out of Sen. Sarlo’s plan unscathed. Whether the end result is higher transit fares, fewer garbage pickups in your town, larger class sizes or an ever-increasing property tax bill, it’s clear that something has to give.

Sen. Sarlo’s counterpart in the lower house, Assembly Budget Chairman Gary Schaer, said it best this week.

“Pensions are underfunded, K-12 public education is underfunded, the Transportation Trust Fund is not funded at all, higher education is underfunded. The list goes on and on and on,” he said, adding that losing the estimated $550 million in revenue from the estate tax would “be extraordinarily disruptive not only to the poor of this state but to the middle class as well.”

The biggest irony here is that if lawmakers were looking for true “tax fairness,” it’s much easier, and far less costly, than what Sen. Sarlo and others have been proposing.

Low-income New Jerseyans would lose much more of their incomes to any significant gas tax increase than the rest of us. That’s because the gas tax is regressive, meaning that lower-income households pay greater shares of their income to it.

The bottom 40 percent of New Jersey households – those with annual incomes of less than $45,000 – would feel the greatest pinch from the new tax, while the top 20 percent, with incomes of $121,000 and above, would feel the tax hike the least.

The simplest way to right that wrong and create real “tax fairness” for over half a million New Jerseyans is to increase the state Earned Income Tax Credit – which gives low-income working families a modest break on their state income taxes – by 5 percentage points. This would cost New Jersey about $60 million in revenue – less than a tenth of what Sen. Sarlo’s plan would cost. And it would be truly fair; what’s on the table right now is fair in name only.

Topic Category: Tax and Budget