Trenton – Governor Christie and the Legislature are suddenly facing an $800-million budget deficit. The main cause, according to the state Treasurer, is declining revenue from the income tax. If history is a guide, some lawmakers and activists will call for higher taxes to plug the hole.
But as the Governor suggested at a recent news conference, high taxes may be the illness, not the cure.
Between 2001 and 2010 New Jersey lost a net 179,000 income tax filers, according to IRS data compiled by the nonpartisan Tax Foundation. They left with more than $13 billion in adjusted gross income. The largest group, 72,000, moved to Florida where there is no income tax.
Skeptics will argue that New Jerseyans are moving to Florida because the weather is better. Perhaps that’s true for some. But it doesn’t explain why 32,000 income tax filers moved to Pennsylvania, or why thousands more relocated to Maine, Massachusetts, New Hampshire and other places where the weather is colder and the winters are longer.
What those states have in common with Florida is a much more hospitable tax climate. Florida, of course, has no income tax. Neither does New Hampshire. New Jersey has one of the highest income taxes in the country. A couple here making $150,000, for example, pays 5.525 percent or nearly $8,300. In Florida or New Hampshire they’d keep that money. A small business owner whose company earns $300,000 would pay more than $19,000 to Trenton. In Florida she would be able to reinvest that money to make her business grow.
The top tax rate in New Jersey – for people earning more than $500,000 – is 8.97 percent. The top tax rate in Pennsylvania is 3.07 percent. Now, half a million dollars is a comfortable income by any standard. But $30,000 is a lot of money too, and that’s what an affluent taxpayer in New Jersey can save every year by moving just across the Delaware.
Don’t forget that New Jersey also imposes the highest property taxes in America and its sales tax is higher than all but a handful of states. Add it all up and moving out of New Jersey is an easy decision for the people who can most easily move.
Census data for the last decade confirms the trend. A new Gallup Survey indicates that it’s not just overburdened taxpayers, however, but career seekers who also want to leave.
According to Gallup, 41 percent of New Jersey residents would leave the Garden State if they could. Their reasons varied, but a plurality of respondents said they’re looking for business or work opportunities. That should be troubling to policymakers in Trenton. More than four in 10 residents believe the grass is greener somewhere else.
Who could blame them? The state’s unemployment rate remains stubbornly higher than the national average and its economy is growing more slowly. And they pay the highest taxes in the country. That’s not only a barrier to small business formation, traditionally a path to the middle class, but a burden on middle class workers and professionals who can give themselves a raise simply by moving.
There has been modest progress. Three years ago Governor Christie and Democratic leaders undertook bipartisan reforms that slowed the growth of property taxes. But property taxes were already too high. Slowing them down is like preventing your headache from getting worse. Relief means lower, not slower, taxes.
Most small businesses pay income taxes, not corporate taxes. Ours is extremely high. And it’s producing sharply less revenue. Would raising it, then, have a different result? Or would that accelerate the migration of income tax payers to states that let them keep more of what they earn?
Our economic and fiscal problems have been in the making for decades. They result from a political culture in Trenton that misunderstands the people of New Jersey. If high taxes and extravagant programs were popular beyond politicians and interest groups, we’d have to build a wall around the state to keep others out. We want real economic opportunities, and they don’t come from government.
CHECK OUT LAURIE'S EDITORIAL IN THE Asbury Park Press Here: