The talk of extending the state’s “temporary” 2.5% Corporation Business Tax surcharge — set to expire at the end of 2023 — has to end. Some are advocating it be prolonged for the purpose of funding New Jersey Transit, which is experiencing financial problems. Others are publicly stating Gov. Phil Murphy should break his long-term promise to end the surcharge to fund other programs. The revenue from the surcharge is not the solution to the state’s fiscal challenges — and it never was intended to be that.
Murphy has publicly stated that he is honoring his commitment to allow the surcharge to expire. Extending it would have serious and disastrous consequences for our economic growth and our state’s reputation as a welcoming place to run a business.
We are, in almost all categories, the highest taxed state in the country. Even with the high level of revenue generated from these taxes, the state has difficulty in meeting budgeted expenses. We need to either find additional revenue sources or reduce expenses — or both — if we want to maintain the recent improvement in our credit ratings.
New revenue sources should come from the expansion of our existing businesses and population bases, not from asking more from those currently living and working in New Jersey. With our strong demographics, assets and location, attracting and maintaining businesses is achievable. To assist with that, our Legislature’s primary focus should be economic growth.
That would create organic, reliable and sustainable new revenue to combat our budget challenges. This would assist in continuing the economic momentum we are beginning to realize. Any talk of implementing new, punitive taxes would slam that momentum into reverse.
I have outlined the unintended ramifications of extending the CBT surcharge below.
- Broken promises and reputational damage: The governor’s and the Legislature’s commitment to allowing the surcharge to sunset was a promise made to the business community. Going back on this commitment would not only erode trust, but set a precedent that undermines the credibility of future assurances from state government. A state that breaks promises jeopardizes its reputation as a reliable and trustworthy partner for businesses. Trust and credibility are values we embrace; we cannot compromise them.
- Contradicting business-friendly claims: Murphy recently returned from an Asian trade mission, promoting New Jersey as a business-friendly destination. Extending the CBT surcharge would directly contradict this narrative, sending a conflicting message to potential investors and businesses considering the state for expansion.
- Financial strain on companies: The current economic climate is uncertain and challenging for large companies, with high inflation, a potential recession, supply chain issues and the impending impact of the Inflation Reduction Act, which saddled many of them with the new corporate minimum tax that is already putting a strain on companies paying the state’s CBT surcharge. Adding the CBT surcharge extension to their financial burdens could exacerbate the challenges and potentially lead to further job losses and economic instability.
- Risk of business exodus: New Jersey already faces challenges in being perceived as a welcoming place for business. The state ranks 50th in the Tax Foundation’s 2024 Business Tax Climate index and 48th in the category of business friendliness in the 2023 CNBC Top States for Doing Business list. Overtaxing and overregulating companies could drive them away. The consequences of losing these valuable contributors to our economy would be severe, resulting in a diminished business landscape.
- Misalignment of funding sources: It is illogical to link the CBT surcharge directly to funding NJ Transit — much in the same way it’s illogical for New York to force New Jersey commuters, through congestion pricing, to fund New York City transit projects. Businesses should not bear the sole responsibility for financing public infrastructure projects.
- Focus on economic growth: Rather than further burdening businesses, the state should prioritize policies that stimulate economic growth and create jobs. A thriving economy naturally contributes to increased tax revenues, which can be directed towards vital needs such as NJ Transit.
- Supporting local economies: Large corporations that pay the CBT surcharge play a vital role in our state’s economy, employing tens of thousands of New Jerseyans that spend their salaries at our local small businesses. If these companies — and workers — leave for more tax-friendly environments, our small businesses and local Main Streets will suffer.
- Philanthropy and fair tax contributions: Those advocating for the CBT surcharge extension argue that large corporations need to pay their fair share. That’s their only argument, and it is misinformed. These companies and their employees already make substantial tax contributions — and they also give back through philanthropic donations amounting to billions of dollars. Punishing them further risks stifling their ability to contribute to thousands of not-for-profit groups that assist the underserved in many ways.
In conclusion, extending the CBT surcharge has grave consequences. We thank Murphy for stating publicly that he intends to stick to his promise — and the Legislature should do the same. The state must carefully consider the long-term implications on its business environment, economic growth and the livelihoods of countless residents. It is crucial to explore alternative avenues that ensure fiscal responsibility without compromising the vitality of our business community.
Economic growth is the ultimate panacea to the problems the state is facing. To achieve that growth, we need to invest in the business community and not cannibalize it.
Tom Bracken is the CEO of the New Jersey Chamber of Commerce.
