Soon, a new administration will be taking the helm of the Garden State. And when Gov.-elect Phil Murphy opens the books for the first time, one thing will be crystal clear: New Jersey is in trouble.
New Jersey has taken a slow, uneven path toward economic recovery, putting an enormous strain on a budget with oversized obligations — and on the pocketbooks of New Jersey families. To set New Jersey on a course toward safer waters, swift, bold action is a must.
There is no doubt that most interest groups and communities in New Jersey will be asked to share in the efforts to put New Jersey back on track. The business community is no exception. But the good news is that there are proposals that can reform the tax code for businesses, helping to level the playing field for all New Jersey businesses while raising new revenues — all without a broad-based corporate tax increase.
Since the Great Recession, the share of revenue collected from businesses operating in New Jersey has dropped, with no signs of bouncing back to its previous levels. Without adequate revenue, the state can’t invest in the state’s small, local and homegrown businesses and entrepreneurs.
There are two main reasons for stagnant corporate tax revenue. The first has to do with economic development incentives gone overboard. The unprecedented surge in corporate tax subsidies now costs New Jersey taxpayers a whopping $80,000 per job and will cause a long-term drag on growth as future tax credits are paid out over the next decade. We concur with Ted Zangari’s opinion that “under today’s circumstances,” New Jersey “can’t be as generous” with these tax breaks — and we look forward to charting a sensible course forward, one that rebalances the economic-development scales.
The other reason has to do with profitable, multistate corporations gaming the system to their advantage. Right now, these large businesses can legally avoid paying their fair share of state taxes, thanks to multiple loopholes in the corporate tax code — accounting tricks not available to New Jersey’s small business owners — leaving behind over $400 million a year.
Now more than ever — and particularly in the face of the possibly changes afoot due to the federal tax plans — New Jersey must tighten up its corporate tax code. By adopting policies that remove tax loopholes and reverse tax cuts for large S-corporations, New Jersey could restore equity in the corporate tax code, raise new revenue and invest in the kind of assets and opportunities that actually drive economic growth for all of New Jersey’s businesses.
New Jersey Policy Perspective’s new report on corporate tax reforms can be found at njpp.org/reports.