As members of families who have called New Jersey home for generations, we’re proud to live, work and grow our families in the Garden State. But we’re also realists about what has happened to New Jersey in the last few decades. What was once an economic engine with a booming population has become a state in decline. That decline is a result of decisions made in Trenton that have made our home state among the most expensive to live and work.
Fortunately, there is a proven roadmap to economic reversal. It can be found in North Carolina.
Ten years ago, North Carolina embarked on a long-term tax reform plan, cutting its top corporate income tax rate 1 percentage point each year until the top rate reached 3% by 2017. The rapid economic development exceeded expectations and led North Carolina legislators to pass further tax cuts, ultimately heading toward elimination of the tax by 2030.
If New Jersey were to follow the North Carolina model, we would see an additional 750,000 jobs within the next 10 years.
New Jersey should follow this example and ratchet down our Corporate Business Tax over the next two to five years to match the national average rate of 5 to 6%, or, ideally, eliminate the CBT altogether over the long term. The economic benefits are clear. While the tax reduces our Gross State Product by almost $8 billion a year, eliminating the tax altogether would raise the rate of growth in personal income by roughly 30%.
Think back to the 1970s: New Jersey was an economic powerhouse — marked by strong family incomes, manageable public debt, a responsible state budget and low unemployment. We truly lived up to the motto on our state seal — Liberty and Prosperity.
Over the succeeding decades, our state has undergone an economic downswing coinciding with the adoption of ever-higher taxes on income and businesses. As the Garden State Initiative has documented in a new report, there’s been a dramatic migration of wealth and business out of our state. The facts are jarring. Income has been fleeing New Jersey’s high taxes. In the last five years, our state has lost income to 47 other states. Over the last quarter-century, New Jersey has lost over $46 billion in income to other states, resulting in a weaker economy and higher taxes for those of us who remain.
For 30 years, New Jersey has been a state in decline, with a stagnant economy and population compared to the U.S. A state that boasted 22 Fortune 500 companies in 2006 now can only claim 15. Household names like Mercedes, Hertz and Honeywell have fled to more hospitable business climates.
These challenges did not occur overnight, nor will they be quickly fixed. But the simplest first step to spur economic development is to cut the business taxes charged for operating in the state. At the current corporate tax rate of 11.5%, New Jersey is an outlier, with the most punitive tax on its home-based corporations. This tax rate is roughly twice as high as the 50-state average, yet only contributes about 5% of total state revenue per year. Even with the expiration of temporary three-year Corporate Business Tax surcharge at the end of this year, New Jersey will still have the fourth-highest corporate taxes in the nation.
With our state’s natural attributes, including a highly skilled and trained workforce, New Jersey has a historic opportunity to reinvigorate our economy in a way unseen in over a generation. Through common sense tax reform that will even the playing field with other states in our region and across the country, our strengths will again make New Jersey a magnet for investment and residents. Such reform will have widespread benefits for our state and especially for middle-class working families.
It’s time to again make our state’s economy as strong as the character of the people who call New Jersey home.
Patrick Delle Cava is the business manager for IBEW Local 102; Audrey Lane is the policy director for the Garden State Initiative.