Will a millionaire’s tax actually cause millionaires to flee the state?
It’s not clear, based on the Assembly budget hearing Monday.
The state ranks second in the nation for millionaires per capita — about 1 in 12 households are millionaires — according to a February report by Phoenix Marketing International. And that number appears to be growing.
The Office of Legislative Services said there were 20,000 millionaires in the state in 2015 — the latest numbers the office has — and 19,000 out-of-state filers who all pay the 8.97 percent rate for income over $500,000.
That tax rate, from Gov. Jim McGreevey’s administration, is what Gov. Phil Murphy anticipates increasing.
David Drescher, senior financial analyst for the Office of Legislative Services, said millionaires and out-of-state filers are projected to grow this fiscal year.
“We’re projecting growth in those categories, and that is based on historical patterns,” he said. “We have seen over the past decade a growth of over 100 percent in the taxpayers with over $1 million. Total taxpayer population grew 11 or 12 percent (in that time).”
Extrapolating on 2015 numbers, that means at least 25,000 millionaire residents and more than 20,000 non-resident filers at the 8.97 percent rate.
Assembly Majority Leader Lou Greenwald (D-Voorhees) said research has shown the increase in taxes does not result in millionaires leaving the state. Only 0.3 percent will leave based on a tax increase, he said.
Greenwald, who has long said fixing the property tax issue is his main concern, said he hopes this administration, unlike previous ones, will look at comprehensive reform.
He also noted that the state has not done a study of which income levels of people have left the state to neighboring Pennsylvania and New York.
“It feels like we’re always trying to patch this together with duct tape and glue,” Greenwald said. “There is not an appetite for more taxes in the state of New Jersey … it doesn’t matter who you tax.”
He asked State Treasurer Elizabeth Muoio to find out those statistics and come up with a budget proposal that accounts for the anticipated outmigration of residents for the upcoming year.
The bad news for the state is that the “April Surprise” — extra revenue that often comes during tax time — did not come this year.
The state is now left with just over a month to decide how it will make up a $2 billion budget shortfall for the upcoming fiscal year.
There were other factors discussed that have not moved the needle for the state, playing into the need for new revenue streams:
- The anticipated windfall from legalized sports betting — a conservative $13 million in tax revenue from an anticipated Year One total revenue of $124 million for the industry.
- The minor reduction in the sales tax last year, given in exchange for the gas tax, has not had a major impact on collections. This is important to keep in mind as an increase is being sought by the Murphy administration.
- The gas tax has been a failure in producing enough revenues. A combination of more energy efficient cars and electric vehicles are partly to blame, according to state officials. In fact, the tax will need to be increased by 2 cents to make up the $100 million shortfall.
In recent weeks, legislators have indicated greater willingness to look at marijuana legalization and the millionaire’s tax, and both the Legislature and administration are counting on new revenue rather than cutting spending.
“It’s time to have a serious discussion,” Muoio said. “There is nowhere else to kick the proverbial can.”