Nobody ever felt sorry for a millionaire. At least that’s the principle some Democrats in Trenton are banking on as they resurrect former Gov. Jon Corzine’s “millionaires tax” to close the expected budget gap for fiscal 2015. Proponents of this tax increase promise it will hit only the wealthy, but in fact, poor and middle-class families will ultimately shoulder the burden.
Of course, the term “millionaires tax” is a misnomer. New Jersey already taxes the income of millionaires at one of the highest rates in the nation — higher than 44 other states do. The so-called millionaires tax is just an expired tax increase that raises New Jersey’s top tax rate to about 11 percent, the third-highest in the United States.
Proponents of the millionaires tax imagine that the only reason people could oppose this tax hike is that they’re worried New Jersey’s well-to-do will run low on caviar if it’s passed.
Actually, what we’re worried about is the impact on New Jersey’s working families.
As it turns out, millionaires don’t like paying high taxes any more than the rest of us do. But unlike most of us, they can easily move out of New Jersey to avoid new tax hikes. For many, changing their tax residence is as simple as spending a few more weeks a year at their vacation home in Florida. They can keep a house in New Jersey to spend time with the grandkids, live for six months and one day in the Florida home, and voilà, they are Florida residents who no longer owe a dime in New Jersey taxes. As a bonus, their children will escape paying New Jersey’s highest-in-the-nation estate tax.
It’s little wonder that in 2010, the last year we had the old Corzine millionaires tax on the books, 88,000 individuals left New Jersey, taking with them a total annual income of $5.5 billion.
The millionaires tax could be more aptly named the “Goodbye New Jersey Tax.”
By Assemblyman Declan O’Scanlon, Republican Budget Officer
It’s a simple question loaded with political appeal: “With so many people hurting, and income disparities rising, shouldn’t we ask New Jersey’s millionaires to a ‘fair share’ in taxes?”
OK. What’s a “fair” share?If the current share of state income tax paid by the top 1% of New Jersey’s taxpayers — about 37 percent — isn’t high enough, what is?Would 80 percent be fair?90 percent?Taxpayers earning $1 million pay an effective tax rate this is about four times what taxpayers earning $100,000 pay.When and how will we know when we’ve achieved “fairness”?
Unfortunately, intense partisanship feeding on visceral emotions has made it virtually impossible to have a rational conversation about taxes in America.As a senior member of the State Assembly’s Budget Committee, I think those of us in positions of leadership have a responsibility to do more than stoke emotions, and instead adopt tax policies that generate the revenue needed to support the State’s budget priorities on a fair and sustainable basis.
Piling taxes on the “rich” may be great politics, but it’s lousy public policy.New Jersey already has a “progressive” income tax system which, thanks to high-income households receiving a greater proportion of their income from investments and capital gains, has made our revenue base highly volatile.Additionally increasing our relative reliance on high-income taxpayers will increase volatility, making it more difficult to engage in prudent long-term financial planning.
Most experts believe increased volatility is a problem because fiscal stability is a condition precedent to sound policymaking.Wild fluctuations in revenues fuel an inefficient boom-and-bust approach to budget-making that mismanages popular expectations. The impact of emergent budget cuts on New Jersey residents is regressive – those at middle and lower income levels experience the pain of budget cuts disproportionately since they more often benefit from state programs.
Some editorialists have suggested Governor Cuomo’s recent decision to embrace higher rates for high income New Yorkers should serve as an example for New Jersey.Perhaps they should read the fine print.New York’s “tax increase” is no such thing.New York’s current high rate is 8.97%, the same as New Jersey’s.Instead of letting the rate go down to 6.85%, as scheduled, Cuomo is saying he’ll let the rate fall to 8.82% for taxpayers at $2 million or more, but let the rate fall to 6.85% for taxpayers between $300,000 and $2 million.Everyone in New York will get a tax cut, but folks above $2 million will get less of a tax cut than they had expected.If that’s the standard of “fairness,” maybe the editorialists are right and we should follow New York’s example!Here’s the critical point: the top marginal rate in New York will soon fall below the top rate in New Jersey; that’s not good news for our competitive position.
New Jersey Treasury’s Chief Economist’s review of national IRS data confirmed a statistical connection between tax increases enacted under former Governor McGreevy and an increase of affluent taxpayers who moved out of, or never moved into, New Jersey.The Chief Economist also conducted a survey confirming a significant proportion of tax advisors had discussed moving out of New Jersey with their relatively affluent clients.Contrary to the often inaccurate summaries in the popular press, the study and the separate survey were modest in scope and merely confirmed what we already know: yes, Virginia, taxes matter.
Are they the only competitive consideration? Absolutely not. Infrastructure, regulations, climate, educational levels and other factors play a major role.But there’s no denying taxes figure into investment and location decisions.
Instead of asking “what’s fair?” we should be asking “what’s in our long-term self-interest?”I suggest it’s in New Jersey’s self-interest to pursue policies that support sustainable and growing revenue collections over time.Although New Jersey cannot expect to compete globally on the basis of low taxes alone, we should avoid negative “outlier” status and with it the kind of reputation that once prevented New Jersey from getting into the starting blocks when companies and leaders make site selections.
State Sen. Shirley Turner’s recent proposal to hit the state’s top taxpayers with a new “millionaires tax” is dangerous nonsense straight out of the soak-the-rich economic playbook. “It’s really about fairness,” said Turner (D-Mercer). “This governor has coddled the wealthy, but they need to pay their fair share.”
Leaving aside the fundamental question of why her proposed 10.75 percent top tax rate is the “fair” level, there is a more glaring problem with Turner’s proposal: It will make fiscal problems in New Jersey far worse.
New Jersey is in a deep financial hole because our politicians have spent money without ever evaluating whether the funding source is competitive and sustainable. The resulting debate about how to resolve these structural imbalances has become a spirited fight, as it deserves to be.
But regardless of one’s philosophical leanings or party affiliation, we should all be able to agree on one thing: We must do everything possible to encourage work and investment in New Jersey in order to fuel the economic furnace that generates government’s desperately needed tax revenues.
Politicians love the notion that they can merely increase your tax rate and generate a proportionally equivalent increase in tax revenues. But this is not the way the world really works.
Taxes change behavior. Drivers will cross state lines to save on gasoline tax. Taxpayers move to Florida to save on their income tax. When a special tax on millionaires a few years ago in Maryland failed to deliver its expected revenue boost, Democratic Gov. Martin O’Malley decided against bringing it back, focusing instead on spending cuts to balance his state’s budget.
Closer to home, New York state enacted a surtax on its top earners in 2009 as an emergency measure to help manage through the recession. Today, despite a recovering economy, New York’s underlying fiscal problems are worse than ever.
Recognizing that tax surcharges don’t solve problems, only prolong them, Gov. Andrew Cuomo has decided against extending the surtax.
New Jersey, which has an identical tax rate to New York’s on its top incomes, will have a top rate that is 57 percent higher than our neighbor in 2012 if Turner has her way.
The lesson across states wrestling with revenue shortfalls is clear: Raising taxes is no panacea because wealth is mobile.
New Jersey’s residents are the most highly taxed in the nation, and employers are steering clear of the state as a result. New Jersey lost more than 10,000 jobs per month in 2009, and job erosion continued into 2010 despite an economic recovery that added 1 million jobs nationally.
New Jersey currently generates a startling 41 percent of its income tax receipts from the top 1 percent of its taxpayers, a precarious reliance that the rating agency Standard & Poor’s said could contribute to “revenue volatility,” as it downgraded the state’s credit rating.
Turner needs to confront the hard truth: There is a limit to how much businesses and high-income residents can be taxed before they simply move away, taking our best hope for new investment, jobs and economic growth with them.
Turner says let the voters decide on the millionaires tax, punting tax policy to a ballot referendum. She might be surprised by the result.
Last November, one state did put a referendum on its ballot to implement a special tax of 9 percent on incomes greater than $500,000. It happened in Washington state, one of eight states with no income tax at all. That state has also been a relative stalwart economically. Washington voters rejected the special tax by a nearly 2-to-1 margin.
As a result of the recent U.S. Census, Washington will gain a seat in the House of Representatives, owing to its large population growth over the past decade, while New Jersey will lose a seat after a population gain below the national average.
Citizens vote with their pocketbooks and also with their feet.
When will New Jersey politicians learn that lesson?
Scott Sipprelle is president of the Lincoln Club of New Jersey and was the 2010 Republican candidate for Congress in the state’s 12th Congressional District