Topic Category: Tax and Budget

Senior Tax Credit Proposal Falls Short of Helping Seniors With the Lowest Incomes

Posted on by Peter Chen

On Friday, new details of Assembly Speaker Craig Coughlin’s senior tax credit program were released to the public. The proposal would create a new program, StayNJ, that would provide a tax credit worth 50 percent of a senior’s property tax bill, with credits capped at $10,000. Because the proposal would provide maximum benefits to those with property tax bills of $20,000 and up, and does not include an income limit on eligibility, the program would disproportionately benefit the wealthiest seniors in the state who own the highest-valued homes. In response to the newly released bill text, New Jersey Policy Perspective (NJPP) released the following statement.

Peter Chen, Senior Policy Analyst, NJPP:

“Lawmakers should be doing everything they can to help seniors keep up with rising costs, but this proposal would fall short by directing the biggest tax cuts to the wealthiest households while many low-income seniors would get nothing. With no income cap on eligibility, higher tax credits for more expensive homes, and no assistance for renters, it’s clear who this program would benefit and who it would leave behind. The program also comes at an enormous cost to the state, just as revenue collections are coming in lower than expected, putting funding for existing public programs and services that seniors rely on at risk.

“Making New Jersey more affordable for seniors is a noble goal, but we’re not going to get there by giving the likes of Bruce Springsteen and Phil Murphy a $10,000 check. There are more effective and efficient ways to target relief to the seniors who are struggling the most with high housing costs, grocery bills, and prescription drug prices.”

The StayNJ proposal would benefit wealthy homeowners the most, leave renters behind, and widen the racial wealth gap:

  • Homeowners with property tax bills in excess of $20,000 would receive the maximum StayNJ credit while lower-income residents would receive less due to their smaller homes and lower property tax bills.
  • Only thirteen municipalities in New Jersey — including Alpine, Millburn, Rumson, and Princeton — have an average property tax bill that would qualify for the full StayNJ credit. These towns have average property values of over $1 million and are home to celebrities, professional athletes, and business and finance executives.
  • One in four seniors aged 65 and over — roughly 230,000 New Jersey residents — rent their homes and would be left out of the proposal, including more than half of Black and Hispanic/Latinx seniors in the state.
  • Homeowners over age 65 in New Jersey are disproportionately white. More than 80 percent of white seniors are homeowners, compared to 41 percent of Hispanic/Latinx seniors and 49 percent of Black seniors.
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Corporate Tax Reform Bill Opens Loopholes, Makes it Easier to Hide Profits Overseas

Posted on by Peter Chen

The Corporation Business Tax changes being proposed in A-5323/S-3737 are extremely complicated. Many of them are positive, but the removal of key anti-abuse provisions leaves gaping holes in preventing corporate tax avoidance through offshore subsidiaries, specifically the decoupling of GILTI conformity from federal rules, and the reopening of the related-entity royalty/interest payment loophole.

Although NJPP supports many provisions in this bill, including the important switch to the Finnigan method of counting corporate profits, the organization cannot support the bill in its current form.

The bill opens and re-opens far too many tax loopholes, which allow corporations to supercharge their tax avoidance schemes and reward them for foreign offshoring of profits and phantom transactions to artificially reduce their corporate incomes.[i] With more than one trillion dollars in corporate profits now flowing offshore to tax havens, New Jersey must do all that it can to ensure that the corporations who earn profits off of in-state consumers and workers cannot shirk their duty to pay taxes through elaborate financial trickery.

Because this is a highly complex bill with many moving parts, I have attempted to organize the sections the legislature should remove, amend, or protect, as well as a few suggestions for provisions to add.

As an aside, I urge the legislature and Treasury Department to add section numbers and descriptive headings to help the public understand what is contained in the bill.

The Problem: Foreign Tax Avoidance 

  • Companies want to shift their profits overseas to avoid taxation
  • Mobile capital makes it easy for corporations to avoid paying their fair share of tax liability by artificially lowering their profits here
  • New Jersey tax law can’t “see” these corporate entities, because our CBT only looks at US-based subsidiaries
  • Foreign tax avoidance cost New Jersey roughly $714 million in lost tax revenue in 2018, with corporate profits (and tax avoidance in foreign subsidiaries) rising substantially since then.[ii] In 2018 that would have amounted to nearly 25 percent of all CBT revenue.
  • As a result, any tax code change that creates incentives to move profits abroad runs the risk of eroding profits stateside and eroding the revenues that should accompany them.

 

Two Key Loopholes for Abuse That Must Be Removed

Removing interest/royalty anti-abuse provisions (S-3737, p. 6, lines 6-48, p. 7, lines 1-5).

  • What it does: Currently the law only allows corporations to claim a deduction for royalty or interest payments to a related member if they can demonstrate that the purpose of the payments was not to avoid taxes.
  • The abuse potential: Corporations can create third-party foreign shell corporations, transfer intellectual property and license it back to their US subsidiaries and/or borrow money from these shells, then claim the interest or royalty payments as a loss, artificially lowering their US profits.
  • Why it must be removed: Because New Jersey can’t see foreign subsidiaries, the profits shifted abroad would avoid taxation, leaving Treasury to chase after the money after-the-fact through auditing, rather than preventing the offshoring abuse from happening in the first place.
  • Note: This provision is NOT included in the Treasury score sheet, but could have serious long-term potential for exploitation and revenue reduction.

 

Eliminating GILTI deduction and treating GILTI as dividend (S-3737, p.10, lines 18-22).

  • What it does: Currently the law treats foreign global intangible low-taxed income (GILTI) in conformity with the federal internal revenue code, roughly taxing it at 50 percent of the CBT rate. This provision would instead treat GILTI as dividend income, effectively taxing it at 5 percent.
  • The abuse potential: Despite the name, GILTI includes a wide range of profits earned by overseas corporations and slashing the amount of GILTI in state corporate taxation will further induce corporations to shift profit-generating assets to foreign subsidiaries.
  • Why it must be removed: Given that corporate taxpayers already need to report this income at the federal level, treating it in conformity with the federal government ensures that New Jersey revenue collection is protected against additional erosion through offshoring. Companies declared nearly $350 billion in GILTI in 2018. Conforming with federal law will ensure that New Jersey can keep its revenues robust in the face of additional profit offshoring.
  • Note: NJPP believes an estimate of ~$50M in revenue loss to be overly optimistic. Recent research has shown that foreign profit shifting behavior by corporations remained unchanged after the Trump Tax Cuts and Jobs Act (2017), with a stable 50 percent of US multinational profits claimed abroad.

 

Provisions to Protect

Reorganization discretion by the Director to force worldwide combined reporting (S-3737, pp.41-42, lines 20-48, 1-31).

  • What it does: Expands the power of the Director of the Division of Taxation to explicitly require a corporate filer to file a world-wide combined filing.
  • How it reduces abuse: Without the “stick” to force corporations to disclose their global holdings in order to unveil any tax avoidance schemes, there is nothing to stop corporations from testing the limits of tax law and hope to tie up disputes in litigation. Any weakening of the anti-abuse provisions as detailed above will require a backstop to ensure that companies cannot abuse tax law and the discretion in the Director is critical to deter companies from tax avoidance schemes. Note that worldwide combined reporting (see below) would help solve many of these problems of foreign offshoring by forcing companies to report all their profits and losses from all foreign subsidiaries as one combined return.
  • Note: The section uses “taxpayers” instead of “affiliates” or other terms. Yet this may limit the scope of this section only to organizations that have enough connection to New Jersey to trigger taxation, rather than affiliates who would not ordinarily be subject to New Jersey tax.

 

Close the captive Real Estate Investment Trust (REIT) loophole (S-3737, pp.25-27).

  • What it does: Includes REIT and Regulated Investment Companies (RICs) in the combined group and does not give them the deduction on dividends-paid. This (mostly) closes the loophole on the captive REIT tax avoidance strategy, which worked as follows:
    • Corporation owns lots of branches/locations, then transfers ownership to the REIT that it controls 90% of.
    • The REIT charges rent to the corporation, which the corporation can take as a deduction.
    • The REIT then pays out dividends to its shareholders (90% of whom are the corporation). The REIT then takes a deduction for dividends paid.
    • The corporation ALSO takes a dividends received deduction for the dividend payments from the REIT.
  • How it reduces abuse: By treating REITs and RICs as part of the corporate group, these payments cancel out, and the dividends-paid deduction is eliminated. In doing so, the tax code reduces the opportunity to abuse these schemes by eliminating much of the financial incentive for setting up these in the first place.
  • Caveat: The REITs and RICs can still be hidden through ownership by other types of corporate entities, such as life insurance company segregated asset accounts or Australian Property Trusts. The exclusion of these types of avoidance schemes (detailed on lines 40-42 on p. 25) suggests that this may simply move these schemes to more exotic foreign-controlled corporate entities. This loophole should be closed quickly and simply, so all REITs no matter how owned are included in the taxable group.

 

Formalize switch to Finnigan rule for taxable groups.

  • What it does: The Finnigan rule, named for a California court case, treats a corporation as taxable as long as any member of its unitary group is taxable. That means that corporate subsidiaries and related groups that do not claim nexus in New Jersey are taxable as part of one taxable group.
  • How it reduces abuse: Various tax schemes rely on related corporations that are outside the scope of New Jersey’s corporate tax system. New Jersey has moved towards combined reporting and has recognized that including all subsidiaries and related corporations is necessary to collapse some of these avoidance schemes.

 

Broader Solutions: Provisions to Add

Tax haven list (not currently included in the bill).

  • What it does: Requires that corporations report subsidiary and associated corporations as part of their combined reporting if they are incorporated in specific tax haven jurisdictions. For example, Montana requires that corporations in a unitary relationship with the taxpayer incorporated in countries like the British Virgin Islands, the Isle of Man, and Luxembourg must be included in a combined return. See Code 15-31-322(f).[iii]
  • How it reduces abuse: Nearly $1 trillion in global profits was collected in tax havens in 2019. Requiring corporations to report the profits generated by the worst-offender tax havens allows New Jersey to recoup some the income being lost to this tax avoidance, as well as protect legitimate offshore income generated by businesses abroad that do not have a connection with New Jersey.

 

Mandatory worldwide combined reporting (not currently included in the bill).

  • What it does: Requires that corporations report income on all their worldwide subsidiaries and controlled corporations as one unit. Subsequently, New Jersey can apply its apportionment formula to ensure only the profits attributable to the state are counted.
  • How it reduces abuse: Allowing corporations to simply elect whether to report their foreign subsidiaries allows corporations to hide their profits abroad and fail to report their income stateside. It also makes the tax avoidance schemes described above much easier to undertake (such as the royalty/interest deduction loophole or the REIT “rent” deduction) because the profit half of the ledger can be hidden in another country. Inevitably, the only way to stave off foreign profit offshoring to avoid taxation is to require true world-wide unitary combination. Although this will have additional administrative challenges, such as the fair allocation of foreign profits to New Jersey, shifting to mandatory world-wide reporting largely ends the game of whack-a-mole to chase down foreign profit-shifting tax avoidance schemes.

 

Final Note: More Auditors Needed

Treasury needs a ramp-up in the number of auditors to combat corporate tax flight.

  • What it does: Annual US corporate profits have more than tripled since 2003 (from $811 billion to $2.9 trillion), but the number of auditors projected for FY2023 is actually lower than the state had in 2003 (a decrease from 428 to 365). The increasing complexity of corporate tax structures and the sophistication of tax avoidance schemes requires sufficient staffing.
  • How it reduces abuse: With much of the enforcement power of the tax agency dependent on the audit power (and the reorganization discretion of the Director), the need for a strong auditor workforce is critical to ensure that the state can enforce its tax laws against the world’s largest and wealthiest corporations, who have substantial interest in lowering their tax liability. The federal IRS recently saw an increase in its workforce as part of the Inflation Reduction Act.

 

NJPP cannot support the bill in its current form, though with amendments, it could be a robust force against tax avoidance schemes.

End Notes

[i] Ludvig Wier and Gabriel Zucman, Global Profit Shifting, 1975-2019, United Nations University-WIDER Working Paper 2022:121, https://www.wider.unu.edu/sites/default/files/Publications/Working-paper/PDF/wp2022-121-global-profit-shifting-1975-2019.pdf

[ii] Ricahrd Philips, Institute on Taxation and Economic Policy, A Simple Fix for a $17 Billion Loophole: How States Can Reclaim Revenue Lost to Tax Havens (Jan. 17, 2019), https://itep.org/a-simple-fix-for-a-17-billion-loophole/.

[iii] See also Jane G. Gravelle, Congressional Research Service, Report R40623, Tax Havens: International Tax Avoidance and Evasion (Jan.  6, 2022) p. 4, https://sgp.fas.org/crs/misc/R40623.pdf.

Labor Unions, Policy Experts, and Racial Justice Organizations Oppose Corporate Tax Loophole Bill

Posted on by NJPP Staff

On Wednesday, members of For The Many NJ and other supporting groups sent an open letter to members of the Senate and Assembly Budget Committees urging them to amend a proposal (S3737/A5323) that would open major loopholes in the corporate tax code and make it easier for multinational corporations to hide their profits in tax havens overseas.

The letter was signed by labor unions, small businesses, essential workers, faith leaders, and advocates for immigrants’ rights, the environment, affordable housing, and racial justice.

“Corporations doing business in New Jersey should pay their fair share of what they owe to the state to support our communities, schools, infrastructure, and social safety net. Yet corporations are poised to get more opportunities to avoid paying their taxes with this bill, on top of an anticipated $1 billion tax cut at the end of the year,” the letter states.

The letter highlighted two key provisions of the bill that must be removed to avoid opening tax loopholes for multinational corporations to exploit:

  1. Reopening a loophole for phantom interest and royalty payments, allowing corporations to artificially reduce their profits for tax purposes
  2. Reducing the tax rate on foreign income in low-tax nations to merely 5 percent, rather than the 50 percent under current law.

The recommendations in the letter mirror those outlined in an analysis of the bill by New Jersey Policy Perspective (NJPP).

“New Jersey loses roughly $700 million to corporations shifting their profits to foreign low-tax jurisdictions,” the letter continues. “Eroding the corporate tax base to assist the world’s largest corporations in tax avoidance schemes hurts the state and its residents, while handing ever more money to corporate shareholders already experiencing record profits.”

The letter was signed by 27 organizations and labor unions, including: New Jersey Policy Perspective, Make the Road New Jersey, New Jersey Institute for Social Justice, ACLU of New Jersey, Latino Action Network, CWA, New Jersey Education Association, 32BJ SEIU, New Jersey Sustainable Business Council, Main Street Alliance, New Jersey Alliance for Immigrant Justice, and New Jersey Working Families Party.

Read the open letter here.

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For The Many is a statewide coalition of more than 30 organizations working to expand funding for essential services and improve budget practices to meet current and future needs, especially for communities that have been historically left behind.

GILTI as Charged: New Corporate Tax Proposal Would Accelerate Tax Avoidance

Posted on by Peter Chen

At a time of record corporate profits and continued economic uncertainty for everyday New Jerseyans, a new corporate tax proposal would re-open loopholes in the tax code that state lawmakers wisely closed years ago, allowing multinational corporations to avoid paying what they owe to the state. The legislation, A5323/S3737, is nothing less than an open invitation for wealthy multinational corporations to shift profits they earn in New Jersey to subsidiaries in foreign tax havens.

NJPP recommends that two provisions be removed, and the entire bill closely studied, to preserve tax fairness and revenue stability for the state:

  1. The bill must preserve existing protections from deducting interest and royalty payments to related subsidiary corporations.
  2. The bill must preserve New Jersey’s existing conformity with federal rules on the treatment of global intangible low-tax income (GILTI).

 

Major Changes Deserve Major Debate and Rigorous Analysis

The proposed legislation, which was negotiated behind closed doors by lawmakers and representatives of big multistate and multinational corporations over many months, contains more than a dozen separate provisions modifying New Jersey’s Corporation Business Tax (CBT).

When dealing with any legislation of this scope, extensive analysis is needed to evaluate the effects of these changes on the state budget in the short- and long term. Despite this complexity, the business lobby is urging swift passage of the bill.

Unfortunately, the proposal creates two enormous loopholes that could strip the state of hundreds of millions of dollars of revenue. This is on top of the revenue that the state will lose if lawmakers move forward with a plan to cut the corporate tax rate for businesses with more than $1 million in annual profit.

Loophole 1: Phantom Interest and Royalty Payments That Reduce Tax Liabilities

First, the bill repeals longstanding provisions in the tax code that prevent corporations from artificially reducing their tax liability by making phantom royalty and interest payments to shell companies based in foreign tax havens.[i]

This is a bit abstract, so an example is helpful here. Say Megacorp earns $1 million in net New Jersey income. Megacorp creates a foreign subsidiary, Mascot LLC, which owns the rights to Megacorp’s mascot. Megacorp pays its subsidiary $900,000 a year for the rights to use its own mascot. They then get to reduce their taxable income (to $100,000) and their corporate tax bill as a result. (A similar scheme actually happened with Toys ‘R’ Us using a Delaware subsidiary for Geoffrey the Giraffe.)

State lawmakers largely closed this loophole for U.S.-based subsidiaries through mandatory “combined reporting,” which treats all parent and subsidiary income as a single corporation for tax purposes, so the hypothetical $900,000 would still count as taxable income.

But for foreign subsidiaries, combined reporting does not apply (i.e., it stops at the “water’s edge”), meaning that the current law prohibiting the deduction of interest and royalty payments is still necessary to prevent the scheme described above and other variants.

Despite this provision’s potentially significant impact on tax avoidance, there is no indication of any revenue loss from the Treasury Department in their analysis of the bill. But it gets worse.

Loophole 2: GILTI Repeal That Allows More Foreign Profit-Shifting

Given the proliferation of corporations shifting their profits into foreign tax havens — a practice made much easier thanks to the 2017 Trump tax cuts — New Jersey wisely linked its corporate tax code to a federal anti-abuse provision that created a new category of taxable income called GILTI: global intangible low-taxed income.

The GILTI provision effectively creates a minimum tax for income from foreign subsidiaries, limiting corporate tax avoidance schemes by including 50 percent of this foreign GILTI income as taxable income.

Many states have followed suit by adopting similar GILTI provisions, and New Jersey is one of roughly a dozen other states that fully conform with the federal government by counting 50 percent of GILTI as taxable income. But A5323/S3737 would repeal this inclusion, guaranteeing that once New Jersey profits are shifted abroad, they’re gone from New Jersey’s tax base for good.

Corporate lobbyists claim that repealing GILTI is needed to make New Jersey more competitive, but there is no evidence that corporations have chosen to move business in or out of states due to their inclusion or exclusion of GILTI. And as a matter of sound tax policy and fairness, the state tax code should discourage corporations from shifting their profits abroad.

Although GILTI is a complex concept, state conformity with the federal rule is easy to implement because corporations already have to abide by federal GILTI rules. And for corporations that think they’re being taxed unfairly due to GILTI, there is already an alternate option: Any multinational corporation can avoid GILTI when filing their taxes by including its foreign subsidiaries in its combined reporting calculation as stateside subsidiaries. This sounds complicated, but the point is that corporations already have options on how they file their state taxes that do require repealing the state’s GILTI provision.

As large multinational corporations continue to become more sophisticated in their tax avoidance and income-shifting schemes, it’s necessary for states like New Jersey to tax them fairly and on a level playing field with corporations and small businesses without a foreign presence.

Corporate Tax Schemes Help Their Shareholders, Not New Jersey 

Allowing corporations to shift their profits to foreign tax havens will only benefit large multinational corporations that can afford to play these games at the expense of everyone else. New Jersey should be strengthening its corporate tax laws to go after deep-pocketed tax dodgers, rather than watering them down. And any argument that strong corporate tax law hurts the business climate must run into the reality that New Jersey corporate profits, employment, and business starts continue to rise.

Repealing the related-party interest deduction rules and GILTI conformity open up the corporate tax system to the abuses of the past, depriving the state of much-needed revenue while opening the door to additional tax avoidance schemes.

End Note

[i] Assembly Bill No. 5323, p. 6, lines 6-48 (Mar. 20, 2023, as introduced). https://pub.njleg.state.nj.us/Bills/2022/A5500/5323_I1.PDF

New Jersey’s FY 2024 Budget Should Prioritize Working Families Over Corporate Interests

Posted on by Alex Ambrose

Good morning, Chairman Sarlo and members of the committee. My name is Alex Ambrose and I am a policy analyst at New Jersey Policy Perspective, a nonpartisan think tank focused on advancing economic, social, and racial justice. Our organization is also a member of the For The Many budget coalition.

Thank you for this opportunity to present testimony.

New Jersey’s state budget should prioritize the needs of working-class families who are struggling to make ends meet over corporate special interests – people over profits. That’s why we urge you: do not give corporations a one billion dollar tax cut by removing the corporate business tax surcharge. Not only would a tax cut be a gift to some of the biggest and most profitable corporations in the world like Amazon and Walmart, it will cost the state revenue sorely needed to continue funding education, infrastructure, health care, and so much more.

These funds are essential to balancing the state’s budget, building a healthy surplus, and reducing the racial and economic disparities that were not just exposed but worsened over the last few years. The pandemic taught us that government support helps ease the harm of economic downturns, while cutbacks and austerity only deepen the pain for hard-working families.

This budget needs to advance changes to make the tax code more equitable and make the state more affordable for low- and moderate-income households. A tax cut for wealthy corporations will do the exact opposite.

Revenue collections were strong in the last few budgets, but economists are forecasting an imminent drop in revenue collections, if not a recession. Last year, the Office of Legislative Services testified that the record-high revenues are only temporary and collections will begin dropping, as we have already seen in the latest revenue snapshot.

What we need is reliable growth and predictability through a fair tax code that prioritizes public services and programs that directly benefit everyday New Jerseyans.

Some of those programs are included in our recommendations for this year’s budget, including the Earned Income Tax Credit, the Child Tax Credit, Temporary Assistance for Needy Families, the Clean Energy Fund, NJ Transit, and Public Defender Fees.

First, we urge you to expand the Earned Income Tax Credit for ITIN holders. Despite being taxpayers themselves, ITIN holders are often excluded from accessing government programs. Expansion would help ensure all people in New Jersey have access to financial security.

Second, we urge you to expand the Child Tax Credit, a policy proven to reduce child poverty. This credit is critical for low-income families, and expanding it will give families additional necessary assistance. Specifically, we recommend doubling the existing credit, as the governor proposed in his budget, as well as expanding eligibility to children up to 11-years-old, as proposed by Assemblywoman Verlina Reynolds-Jackson.

Third, we ask for increased monthly grants for families participating in Temporary Assistance for Needy Families. TANF provides critical support to families experiencing economic hardship, and increasing grants to at least 50% of the federal poverty level and adjusting for inflation would better provide our state’s families with the means to get back on their feet.

Fourth, we urge you to end the diversions of the Clean Energy Fund, a fund that makes new, safer technologies more affordable for the state and for working class families. Should the diversions continue, New Jersey will have diverted over $2 billion dollars away from clean energy, and every dollar diverted undermines the clean energy laws we already have in place.

Fifth, we ask that you prioritize funding NJ Transit’s capital needs. NJ Transit has a backlog of projects necessary to keep service reliable and to improve infrastructure to avoid another year of record-high service breakdowns. The agency has many required capital improvements with no identified funding source.

Finally, we urge you to end public defender fees, which are a regressive tax on low-income defendants. The right to an attorney is a fundamental right in our justice system and should not be predicated on the ability to afford adequate legal representation. Eliminating these fees is a critical step in ensuring all residents have access to justice regardless of their financial circumstances.

The state has a robust set of achievements over the last few years including a full pension payment, pre-school expansion, working family tax credits, affordable housing, and more. To think the same economic benefits will come to our state if we give wealthy corporations a tax cut is trickle-down economics at its worst.

New Jersey Policy Perspective asks that while you are evaluating the budget, you keep everyday working New Jersey families in the front of your mind, not corporate CEOs.

The New Jersey state budget must help the grocery worker with no car trying to get to work on unreliable public transportation. It must help the parent working three jobs to pay for child care. It must help the front line worker who has to leave their job to attend to their child having an asthma attack.

Cutting corporate taxes will weaken our state’s fiscal health while doing nothing to strengthen our communities. State lawmakers should prioritize making New Jersey affordable for those who need the most help — not the wealthy and well-connected.

Thank you for your time.

Governor’s Budget Proposal Rests on Shaky Foundation With Corporate Tax Cuts

Posted on by Nicole Rodriguez

Earlier today, Governor Murphy unveiled his FY 2024 state budget, proposing new investments in pre-K-12 education, property tax relief, tax credits for working families, and more. The budget also proposes eliminating the Corporate Business Tax surcharge, which would cost the state $1 billion per year. In response to the budget address, New Jersey Policy Perspective (NJPP) released the following statement.

Nicole Rodriguez, President, NJPP:

“The governor’s budget proposal wisely invests in the building blocks of a strong economy, from public schools to public health, but these investments rest on a shaky foundation. By giving a massive tax cut to the most profitable corporations in the world, there’s no promise that the state will be able to fund these public needs in the future.

“The long-term success of New Jersey requires reliable and sustainable sources of revenue to keep state government running and to fund the vital public services and infrastructure we all rely on. By eliminating the Corporate Business Tax surcharge, lawmakers will blow an even bigger hole in the state budget than previously thought. Buried in the governor’s budget proposal is a new estimate for how much this corporate tax cut will cost the state, coming in at a whopping $1 billion next year.

“We should know by now that trickle-down tax cuts do not work. We learned this lesson the hard way during the Christie administration, where big tax cuts for the wealthy and well-connected led to the hollowing out of public services and exacerbated income and wealth inequality.

“State leaders can’t have it both ways. A promise to deliver the supports and services our communities need requires a smart tax code that not only responds to current economic conditions but works in our collective favor. The “next New Jersey” doesn’t have a chance without tackling our rigged tax code head-on. That’s the hard work we expect from elected officials, and it only pays off if they prioritize the needs of the many over those of a chosen few.”

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Workers and Advocates Urge Lawmakers to Stop the Corporate Millionaires Tax Cut

Posted on by NJPP Staff

A day before Governor Murphy delivers his annual budget address, workers, policy experts, and advocates from For The Many NJ gathered outside the State House to urge lawmakers to stop the corporate millionaires’ tax cut and maintain the Corporate Business Tax surcharge in next year’s budget.

Eliminating the 2.5 percent surcharge, paid on every dollar of corporate profit over $1 million, would cost the state at least $650 million in revenue every year. The coalition warned that the tax cut would blow a big hole in the state’s budget and threaten investments in essential public services, programs, and infrastructure that residents and businesses alike rely on.

“Low and moderate-income families are struggling to make ends meet. Sunsetting the corporate business tax and undermining our current and future progress as a state would be a mistake,” said Antoinette Miles, Political Director of New Jersey Working Families and emcee of the press conference. “The only promise our state must fulfill in its budget is the promise of uplifting working families — not the largest multi-million dollar corporations.”

According to a report released last week by New Jersey Policy Perspective, only the top 2 percent of businesses operating in New Jersey pay the surcharge, including multi-national corporations not headquartered in the state like Amazon, Walmart, and Bank of America.

“This is a tax cut for some of the wealthiest corporations on the planet, not ‘Mom and Pop’ businesses,” said Sheila Reynertson, Senior Policy Analyst at New Jersey Policy Perspective. “When big corporations don’t pay what they owe, we all have to make up the difference, either in higher taxes or in cuts to vital public services like schools and transportation. We should know by now that corporate tax cuts never trickle down. This is a bad deal for New Jersey.”

Speakers from the coalition urged lawmakers to pass a budget that would benefit all residents, not just corporate shareholders.

“While working families struggle to pay for rent and food every month, multi-billion dollar corporations like Amazon are reporting record profits,” said Rodney Salas, leader and member of Make the Road NJ. “New Jersey cannot give bad actors like Amazon a tax break. Letting the (CBT) expire would mean that working people would have to subsidize billionaire corporations like Amazon that are making record profits. Working people do not want to subsidize corporations. It is time to invest in housing, schools & working families, not to give tax cuts to billionaire corporations like Amazon in the FY2024 budget.”

“We urge Governor Murphy and the NJ Legislature not to walk away from a successful policy that reversed the state’s fiscal damage and ensured the viability of important investments in low- and moderate-income New Jerseyans,” said Dena Mottola Jaborska, NJ Citizen Action Executive Director. “If our leaders reverse the CBT surcharge while we are simultaneously seeing a deep drop in federal funding, the state’s fiscal health will take a huge hit largely at the expense of our most vulnerable communities. All for a windfall for the state’s wealthiest corporations while jeopardizing funding for a host of programs that millions of residents need to achieve economic security. Progress for these communities requires sustained investment and commitment.”

“Cutting the corporate business tax surcharge is giving money to our wealthiest corporations, those in the top 2% of earnings,” said Francine Pfeffer, Associate Director of Government Relations at NJEA. “That’s $600 million the state doesn’t have to help schools pay for new ventilation systems, student transportation, or other needs.”

“Investments to protect New Jersey’s environment and public health have long been short-changed and allowing the millionaires tax for Corporations to expire on Dec 31st this year will be disastrous. Clean energy programs for the poor and mass transit capital projects are already defunded; climate programs are underfunded and delayed when they need to be expanded to meet the moment; and a cut to the corporate business tax will make matters worse resulting in a direct cut of $48 million to green and blue acres,” said Eric Benson, Clean Water Action, NJ Campaigns Director. “We are running out of time to make a meaningful impact on emissions before the worst impacts of the climate emergency become our NJ children’s future and we can’t afford to let New Jersey’s richest corporations, who have thrived in the last three years, off the hook.”

“Allowing the CBT surcharge to sunset would be yet another giveaway to the wealthiest corporations who already exploit tax avoidance loopholes to maximize short-term profits,” said Richard Lawton, Executive Director of the NJ Sustainable Business Council. “Since 98 percent of New Jersey businesses have revenues that make them exempt from the surcharge, eliminating it would only compound the unfair competitive advantage that large out-of-state companies already have over local businesses who do their part as responsible citizens to make New Jersey a great place to work and live.”

“The Christian church began our 40 day tradition of reflection, confession and renewal this past week on Ash Wednesday. We confessed that we are in bondage to sin and submit too readily to the idols and injustices of economic life. We often rely on wealth and material goods more than God, and close ourselves off from the needs of others. Too uncritically we accept assumptions, policies, and practices that do not serve the good of all,” said Rev. Sara Lilja, Executive Director of Lutherans Engaging in Advocacy Ministry NJ (LEAMNJ). “Today we call on all people of faith to question the decision of the Governor to let the Corporate Business Tax surcharge expire. Cutting the CBT puts vital funding for public services at risk — like investments in public infrastructure, health care, and public schools. Just as the federal government is pulling back on SNAP assistance for hard working families, or TANF benefits to those most in need, we as a state must continue to assist. If the pandemic taught us anything, it is that we rely on “essential workers” for our daily life, we must continue to support all New Jerseyans; and continue to fund programs that support families in the hight cost state.”

Keeping the Corporate Business Tax surcharge in place generates more than $600M per year and at a time when future federal windfalls are in doubt, making this revenue stream permanent is more essential than ever,” said Matthew Hersh, Director of Policy and Advocacy of the Housing and Community Development Network of New Jersey. “Corporate landlords are raising rents at unconscionable rates — between 20 and 40 percent statewide – while benefiting from huge tax breaks. NJ has long been a leader in many sectors, but when it comes to housing the approximately 200,000 neighbors in need of an affordable home, we continue to fall short. Working closely with the Murphy administration and our legislative allies, we have made great strides toward funding and allocating the Affordable Housing Trust Fund, creating the Affordable Housing Production Fund for towns with unmet Fair Share housing obligations, prioritizing first-time and first-generation homeownership and emergency rental assistance. But we cannot take our foot off the pedal now as we HouseNJ: the CBT is a key part of funding these priorities, and we cannot and should not reverse course.”

“It is unconscionable that New Jersey lawmakers would give tax cuts to the state’s largest corporations that make millions of dollars in profits every year instead of investing those funds in transformative policies that would narrow our massive racial wealth gap and create a more equitable New Jersey for everyone,” said Harbani Ahuja, Associate Counsel, Economic Justice, New Jersey Institute for Social Justice. “$600 million could go a long way in funding programs like Baby Bonds, to enable low-income and low-wealth Black and other children of color to build wealth and economic security.”

“Now is the time to address the future of New Jersey’s economy. The Corporate Business Tax has significantly supported investments and policies critical for maintaining the high quality of life New Jersey has to offer,” said Kelly Conklin, President of the Main Street Alliance Board. “As it stands, the CBT is New Jersey’s third largest source of revenue. To sunset the surcharge, of which only 2% of New Jersey businesses are taxed, will not help small businesses. Main Street businesses will have to pick up the revenue tab left by large multinational corporations, adding an undue burden to the struggles small businesses face year over year to make their margins, keep pace with inflation, retain their employees with competitive benefits and manage personal responsibilities. To sunset the CBT is to forfeit $664 million a year and force families in this state to spend an entire second income on child care. To sunset CBT is to give away $664 million to companies recording record profits while simultaneously laying off tens of thousands of employees. Without this funding public infrastructure like our roads, public spaces, schools and more will crumble. Corporations that qualify for the CBT have long avoided paying their fair share of taxes, placing the responsibility on small businesses and other vulnerable communities. Eliminating the Corporate Business Tax surcharge is not in the best interest of small businesses in New Jersey.”

Watch a livestream of the event here.

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For The Many is a statewide coalition of more than 30 organizations working to expand funding for essential services and improve budget practices to meet current and future needs, especially for communities that have been historically left behind.

Stop the Sunset: Corporate Tax Cut Would Benefit the Biggest and Most Profitable Businesses

Posted on by Sheila Reynertson

Editor’s Note: This report was updated on March 15, 2023 to reflect that the proposal to eliminate the Corporate Business Tax surcharge would cost New Jersey $1 billion in annual revenue, according to Governor Murphy’s FY 2024 Budget in Brief. A previous version of the report estimated it would cost at least $600 million annually.

With corporate profits at record-breaking levels and tax evasion on the rise, New Jersey lawmakers are poised to give the biggest and most profitable businesses operating in the state a multi-million dollar tax break at the end of 2023. A proposal to eliminate the Corporate Business Tax surcharge will cost New Jersey at least $1 billion in annual revenue, threatening the state’s ability to sustainably fund programs and infrastructure that families, communities, and businesses rely on.[1] This change would only benefit a select few highly profitable corporations, providing an average tax cut of $5 million to companies with more than $100 million in annual profits.

The Corporate Business Tax Surcharge is Targeted to Corporations That Can Afford It

The Corporate Business Tax (CBT) is New Jersey’s third largest source of revenue, supporting vital investments — like transportation infrastructure, open space, pre-K-12 schools, and so much more — that make the state an attractive place to raise a family or start a business. In 2018, state lawmakers amended the corporate tax code by adding a surcharge on profits over $1 million.[2] This targeted change helped the state meet its longstanding obligations, like ramping up school funding and making full pension payments, and generated sustainable funding for safety net programs and public services at the height of the pandemic.[3]

Only the wealthiest corporations are required to pay the 2.5 percent tax on every dollar of net profit above $1 million, including multi-national businesses like Amazon, Walmart, and Bank of America that do business in New Jersey but are not headquartered here. The vast majority of New Jersey businesses, 98 percent, do not pay the surcharge at all because their annual profits fall below the $1 million profit threshold. In fact, just over 2,500 corporations pay the surcharge, according to the most recent state data.[4] By targeting mega-corporations that make millions, if not billions, in profits every year, the surcharge is a sustainable revenue stream paid by the businesses that can afford it, sparing “mom-and-pop” businesses across the state.

Allowing the CBT surcharge to sunset at a time of unprecedented corporate profit margins would come at a significant cost while primarily benefiting a select few, ultra-profitable businesses. Roughly 70 percent of the corporate tax cut would go to businesses with more than $10 million in annual profits. Corporations with more than $100 million in profits would receive the largest tax cut, averaging $4,952,000.

Corporations Are Making Record Profits While Paying Less in Taxes

New Jersey’s strong CBT revenue collections in the last few years are a clear indicator that corporations are thriving, and the surcharge has neither hurt their bottom line nor driven them out of the state — an exaggerated talking point favored by business lobbyists to lower their tax obligations. From 2009 to 2021, corporate tax revenue in New Jersey increased by 212 percent, with the largest increase happening between 2020 and 2021, the latest year data is available.[5]

And while the most profitable corporations in New Jersey may be paying slightly more in state taxes, they continue to avoid paying what they truly owe by taking advantage of loopholes in the tax code and lobbying for tax cuts at the federal level. Wealthy corporations received a massive tax cut during the Trump administration, as the 2017 “Tax Cuts and Jobs Act” cut the U.S. federal corporate tax rate from 35 percent to 21 percent,[6] its lowest level since 1946.[7] The tax law also maintained blatant tax loopholes commonly used by wealthy corporations, allowing them to send their profits to tax havens like the Cayman Islands, completely disinvesting from the United States.

Tax avoidance is so common — and without consequence — that the amount of questionable tax dodging by corporations has nearly doubled in a decade’s time from $164 billion in 2010 to $235 billion in 2020.[8] Until the Internal Revenue Service rebuilds its hollowed out workforce, especially employees with experience working with complex tax filings, wealthy corporations can and will continue to reap the benefits of a rigged tax code.[9] Recouping a portion of this foregone revenue at the state level is an entirely appropriate countermeasure to these blatant efforts to minimize business tax obligations.

Maintaining the Surcharge Benefits Working Families and the State’s Finances

Revenue generated by the surcharge will be necessary to balance the state budget as pandemic-related federal assistance expires. Signed into law in March 2021, the American Rescue Plan (ARP) provided billions of dollars in flexible funding for states and local governments to begin reversing the harms done by the pandemic and promote an equitable economic recovery. New Jersey’s state government received $6.2 billion in flexible aid, helping lawmakers maintain funding for public programs and services and expand financial assistance to renters, public hospitals, small businesses, and child care providers, among others in need.[10]

Once federal funds are gone, new and recently expanded programs and services will require funding from the state, and there will be less revenue to go around if the CBT surcharge is eliminated. The state’s new universal newborn home visit program, for example, tapped $6 million in one-time fiscal recovery dollars to fund the first year. That casts doubt on whether the state will be able to sustainably fund the program in future years. Similar concerns arise around ARP allocations for programs that are normally supported by state funds, like grants for mental health services ($15 million) and capital improvement projects across the state ($50 million).

With rising costs, growing obligations, and looming end of federal relief aid, policymakers must provide a path of sustainability for the economic future of the Garden State. That starts with a commitment to long-lasting renewable revenue to meet the state’s current and future needs and a permanent surcharge on wealthy corporations is a smart first step.

 

End Notes

[1] State of New Jersey, Department of the Treasury, Office of Revenue and Economic Analysis, New Jersey Corporation Business Tax: Statistical Report for Return Years 2016–2018, August 2022. https://www.state.nj.us/treasury/economics/documents/pdf/stats/CBT-100-SOI-TY2016-2018.pdf#page=22;Legislative Fiscal Note for A4721, September 2020. https://www.njleg.state.nj.us/bill-search/2020/A4721/bill-text?f=A5000&n=4721_E1

[2] Chapter 48. https://pub.njleg.state.nj.us/Bills/2018/PL18/48_.PDF

[3] Chapter 95. https://pub.njleg.state.nj.us/Bills/2020/PL20/95_.PDF

[4]State of New Jersey, Department of the Treasury, Office of Revenue and Economic Analysis, New Jersey Corporation Business Tax: Statistical Report for Return Years 2016–2018, August 2022. https://www.state.nj.us/treasury/economics/documents/pdf/stats/CBT-100-SOI-TY2016-2018.pdf#page=22

[5] U.S. Bureau of Economic Analysis and U.S. Census Bureau at Federal Reserve Bank of St. Louis Economic Research Division, Federal Reserve Economic Data, https://fred.stlouisfed.org (Last updated Dec. 22, 2022). Without comprehensive public data on corporate profits in New Jersey, CBT revenue collections can be used as a proxy given that the tax is paid as a percentage of profits made in the state.

[6] The Tax Cuts and Jobs Act (TCJA), Public Law 115–97.

[7] Tax Policy Center, Historical Corporate Income Marginal Tax Rates, Tax Years 1942-2022, February 2022. https://www.taxpolicycenter.org/statistics/marginal-corporate-tax-rates

[8] The Washington Post, As IRS audits waned, big businesses racked up unapproved tax breaks, July 2021. https://www.washingtonpost.com/business/2021/07/14/corporate-tax-break-irs/?itid=hp-more-top-stories

[9] ProPublica, How the IRS was gutted, December 2018. https://www.propublica.org/article/how-the-irs-was-gutted

[10] New Jersey Policy Perspective, New Jersey Has Less than $1 Billion Left in American Rescue Plan Funds, August 2022. https://www.njpp.org/publications/blog-category/new-jersey-has-less-than-1-billion-left-in-american-rescue-plan-funds/

Unions, Advocates, and Policy Experts Urge Lawmakers to Say No to Corporate Tax Cuts

Posted on by NJPP Staff

On Friday, members of For The Many NJ sent an open letter to Governor Murphy, Senate President Scutari, Assembly Speaker Coughlin, and members of the Senate and Assembly Budget Committees calling for the extension of the Corporate Business Tax surcharge.

“This is exactly the wrong time to be giving the most profitable corporations a $600 million tax cut. Such a gift for corporations and their shareholders takes away resources from our schools and infrastructure and undermines funding for areas that promote opportunity for all,” the letter states.

The Corporate Business Tax surcharge is a 2.5 percent tax on corporate profits exceeding $1 million. The surcharge is paid by the top 2 percent of the wealthiest corporations operating in the state, including multi-state corporations like Amazon and Walmart that make profits in New Jersey but are not headquartered here. The tax cut is estimated to cost the state at least $600 million annually.

“The wealthiest 2 percent of businesses should be paying more, not getting a tax cut when everyday New Jerseyans are struggling,” the letter continues. “We keep hearing about kitchen-table issues and middle-class New Jerseyans. How will corporate tax cuts help them?”

The letter was signed by 28 organizations and labor unions, including: New Jersey Policy Perspective, New Jersey Institute for Social Justice, ACLU of New Jersey, Latino Action Network, 32BJ SEIU, CWA, and the New Jersey Education Association.

The letter calls for lawmakers to extend the Corporate Business Tax surcharge so the state can continue investing in the programs that make New Jersey an engine of economic growth and opportunity.

A copy of the letter can be read here.

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For The Many is a statewide coalition of more than 30 organizations working to expand funding for essential services and improve budget practices to meet current and future needs, especially for communities that have been historically marginalized.  

Letting the Corporate Business Tax Surcharge Expire Will Give a Huge Tax Cut to the Most Profitable Businesses

Posted on by Nicole Rodriguez

In an interview with Bloomberg TV earlier today, Governor Murphy said that he plans to let the Corporate Business Tax (CBT) Surcharge expire at the end of the calendar year, giving the biggest and most profitable corporations a $600 million tax cut. The CBT surcharge is only paid by the top 2 percent of the wealthiest corporations operating in the state, including out-of-state corporations like Amazon and Walmart. This announcement comes one day after the governor’s State of the State address where he slammed states that hand massive tax cuts to wealthy individuals and mega-corporations. In response to the announcement, New Jersey Policy Perspective (NJPP) released the following statement.

Nicole Rodriguez, President, NJPP:

“This is a tax cut for some of the biggest businesses in the world, plain and simple. With corporate profits at record levels and millions of New Jersey families struggling to keep up with rising costs, this represents the absolute worst of trickle-down economics. To be clear, this would not benefit mom-and-pop businesses but corporations like Amazon and Walmart that make billions of dollars every year off the backs of low-paid workers.

“A day after the governor centered his State of the State address on creating opportunity for everyone, this tax cut will blow a hole in the state budget and make it even harder to fund the very programs and services that would do just that. New Jersey’s long-term economic and fiscal health will be in jeopardy if lawmakers allow more than half a billion dollars to go back into shareholders’ pockets rather than addressing the urgent needs of our communities.”

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