Certified public accountants often hear objections about New Jersey’s high taxes from clients who are looking to leave New Jersey — and this past tax season was no exception, according to members of the New Jersey Society of Certified Public Accountants. And a Rutgers-Eagleton poll done in collaboration with the New Jersey Business & Industry Association serves to underscore why.
The overwhelming majority of New Jersey residents polled — 82 percent — said they are overburdened by taxes and are not getting their money’s worth in services. Similarly, 81 percent of respondents said they were dissatisfied with the way state leaders are addressing New Jersey’s affordability challenges.
Against this backdrop of taxpayer angst about some of the highest personal and business taxes in the nation, Gov. Phil Murphy’s Fiscal Year 2020 budget proposes more tax increases on top of the $1.6 billion in tax hikes enacted last year. He is proposing a top 10.75% marginal tax rate affecting income over $1 million. If enacted, more New Jersey residents and small businesses that flow income through their personal returns would be taxed at rates well above New York state’s 8.82% and Pennsylvania’s flat 3.07% rate.
It is no wonder a recent NJCPA member survey found that 75% of CPAs have advised some clients to relocate their homes or businesses out of New Jersey in order reduce their tax burden.
New Jersey must break its destructive tax-and-spend habit by addressing the structural imbalances in its budget in order to put the state on sounder financial footing.
A recent NJBIA analysis of 10 years’ worth of audited state revenues, expenses and debt found state debt increased 382% from 2007 to 2017, and state spending increases outpaced revenue, 45% to 23%. New Jersey’s combined net pension liability and post-employment benefit obligation totals $151.6 billion, which is four times the size of the annual state budget.
Without changes to the pension and benefit structure, costs will rise from $6.6 billion a year to about $11 billion annually in 2023, according to state Treasury projections and other health benefit reports. That means 27% of the state budget would go to support pensions and benefits, leaving less money for essential state services and making it more likely the state will resort to additional tax increases to make up the difference.
The NJCPA strongly endorsed the pension and benefit reforms spelled out by the New Jersey Economic and Fiscal Policy Workgroup in its Path to Progress report last year. These include shifting from the current defined benefit pension system to a more sustainable hybrid system that combines the best elements of both a defined benefit and defined contribution system.
In May, the state treasurer will brief legislative budget committees on the administration’s updated revenue projections for the current fiscal year that ends June 30. Murphy had been counting on 7.7% revenue growth to balance the FY 2019 budget; however, through March, the total growth rate of all major revenue sources has been only 4.74%.
In short, New Jersey remains on a counterproductive path of spending more money than it has and relying on tax increases to make up the difference. The changes to the income tax bracket in the proposed FY 2020 budget will further undermine the state’s ability to grow and attract businesses.
NJCPA supports policies that produce a fair tax system and economic growth so that companies and residents will stay in New Jersey and thrive. NJCPA stands ready to serve as a resource to the governor, his administration and the Legislature to develop policies that foster economic growth.
Ralph Albert Thomas is CEO and executive director of the New Jersey Society of Certified Public Accountants. With more than 14,500 members, NJCPA represents the interests of the accounting profession and advances the financial well-being of the people of New Jersey. The NJCPA plays a leadership role in supporting the profession by providing members with educational resources, access to shared knowledge and a continuing effort to create and expand professional opportunities.