In a letter to a joint legislative committee Monday that was focused on the state’s existing tax incentives, Treasurer Elizabeth Muoio offered an interesting business case for doing away with the current programs.
The Department of Treasury is blaming existing incentives for the poor performance of the corporate business tax — which was changed last year to capture more revenue by increasing the amount taxed and changing the format for the taxable amount.
In the letter, Muoio said there has been a lack of discretion with the programs, which would do better with a cap — as proposed by Gov. Phil Murphy.
“What we do know, however, is that tax credits are holding down the performance of the CBT, as well as the performance of the Insurance Premiums Tax, and that the utilization of tax credits will likely only continue to escalate over the next half-decade,” Muoio wrote. “Based on projections from the EDA, the state could stand to lose roughly $1 billion in revenue annually over each of the next four fiscal years due to the potential utilization of tax credits.”
Muoio suggests a cap could help the state better budget its finances by offering more predictability.
In addition, Muoio said there is no way to know how the approved credits are being used.
“This is due in no small part to the fact that approximately three-quarters of credits awarded are transferred through tax transfer certificates, meaning they are sold to other companies,” she said. “The fact that such a large percentage of the tax credits received are being sold for cash rather than being used to lower a company’s tax burden calls into question whether the tax incentive programs are achieving the goals for which they were intended.”
The criticism of selling tax credits contrasts with the idea of an Evergreen Fund, which Murphy first introduced in October in his economic vision.
The Evergreen Fund, which he pitched overseas in Germany and Israel, auctions tax credits to corporations and uses the proceeds to help venture capital funds fund startups and innovative ideas.
The current proposed $500 million in capital in Murphy’s plan would be raised in part by the auction — which could have up to $60 million in tax credits available each year for five years — and have a match from venture capital funds.
Last year, the state raised the CBT to 11.5 percent, from its current 9 percent. The increase will phase out in four years, but it has placed New Jersey second in the nation for highest corporate business tax.
