New Jersey’s business community has concerns about what some are describing as an antiquated solution to the budget problem.
A new analysis from the New Jersey Business & Industry Association shows the tax increases being considered to boost revenue for the state — ideas ranging from targeting businesses to the wealthiest residents — would hit already-challenged areas of the economy.
For instance, the proposed corporate tax would impact 2,373 New Jersey companies, of which 86 percent earned between $1 million and $10 million in net allocated income.
New Jersey’s ongoing resident outmigration has resulted in a net loss of $25 billion in adjusted gross income over the past 12 years, and the state has seen a slow rate of growth of millionaires.
“This concerning data should serve as fair warning to our policymakers that higher CBT, millionaire’s or sales taxes, on top of the cumulative costs from our recent and increasing business mandates, are only giving our business owners and residents more reason to leave our great state,” said NJBIA CEO and President Michele Siekerka. “And, if they aren’t leaving, they’re certainly not planning to grow here. This analysis speaks to our declining competitiveness in the region and the nation. We need to improve our state’s economy through comprehensive planning, rather than excessive taxation. This is the only way to reclaim our regional competitiveness and to reverse the disturbing trend of outmigration from New Jersey.”
In a recent phone interview regarding the state’s budget battle, New Jersey Chamber of Commerce CEO and President Tom Bracken shared similar concerns.
“Raising taxes will not help either of the issues of affordability or business competitiveness, which we need to desperately work on,” he said. “The resolution of that (in the budget) is probably going to be the most impactful for the business community.”
Bracken said the plan by state Senate President Stephen Sweeney (D-West Deptford) to increase the corporate tax, as a result of the windfall “everybody in the country benefited from” after the federal tax reform passed, is going to hurt the state’s competitiveness.
The NJBIA report addressed the issues of New Jersey’s adjusted gross income, corporate business tax and a potential millionaire’s tax.
In a study of tax year 2015-2016, data from the IRS show an adjusted gross income potential loss of $3.5 billion, which is higher than the national average of $2.1 billion in the past 12 years. Since the 2004-2005 tax year, New Jersey lost $24.9 billion in potential AGI, despite gaining $66.5 billion overall.
“This is critical income that has been lost to New Jersey’s general fund for more than a decade,” Siekerka said. “The economic impact that this loss has on the state’s economy is irrefutable, and it will worsen if taxes are increased even more.”
In terms of the corporate income tax, New Jersey ranks sixth-highest in the country. If New Jersey increases its 9 percent rate to 12 percent, it would jump to second place, tying with Iowa — and widen any gap between the state and regional competitors such as Pennsylvania (9.99 percent), New York (6.5 percent) and Massachusetts (8 percent).
The 14 percent of New Jersey companies earning more than $10 million (340 companies) accounted for nearly 73 percent ($14.89 billion) of total allocated net income for all companies earning $1 million or more in 2015.
“While most states have either reduced or maintained their corporate tax rates, New Jersey is poised to go in the wrong direction,” Siekerka said. “Some studies link an increase in CBT to a reduction in employment and income, and a decrease in CBT to quicker job creation. A CBT surcharge would only incentivize our larger corporations to expand their operations elsewhere. And, if they’re stagnating here, that’s just as bad as outmigration for New Jersey.”
Further aggravating the outmigration problem would be a millionaire’s tax, which would result in New Jersey losing its selling point as the cheaper option with access to New York, and many of those who work in the neighboring state could leave, experts have said.
The proposed increase in tax, from 8.97 to 10.75 percent on incomes more than $1 million, would hurt the slow growth of an already slow-growing sector of the population, the report shows.
The number of returns for New Jersey businesses earning $1 million or more increased between 2000 and 2015, but New Jersey grew at a slower rate in this category than three regional competitors — including Pennsylvania and New York — according to the report.
“Millionaires have grown around the nation during a time of economic upswing, but New Jersey’s percent change of growth is slower than most of our regional competitors,” Siekerka said. “We should be wary of our tax policies making New Jersey more dependent on the highest income earners who are being given more reasons to consider leaving the state. We need our policymakers to pause until the State Tax Policy Working Group, created by Senate President Steve Sweeney, and the Economic Growth Council, created by Gov. (Phil) Murphy, complete their work and advance comprehensive recommendations. We need them to plan and adopt long-term, sustainable solutions rather than attempt to tax our way out of fiscal challenges.”