We‘re number 50. Again

A new report by the Tax Foundation shows New Jersey as having the worst tax climate for businesses of all 50 states - a rating the Washington think tank has given the state every year since 2015. The study, released Oct. 22, should provide ammunition to pro-business groups arguing that the state’s tax structure and regulations are too burdensome. Legislative leaders also will likely cite the report as they pursue efforts to cut public worker pension and health care costs.
New Jersey’s tax burden, the report notes, includes an inheritance tax and the second-highest corporate income tax, an “aggressive treatment of international income” and “some of the nation’s worst-structured individual income taxes.”
Topping the Tax Foundation list are Wyoming, South Dakota, Alaska, Florida and Montana, all of which lack at least one of the three main taxes: corporate income, individual income and sales tax. Every state levies property and unemployment insurance taxes.
New Jersey’s corporate business tax rate is 11.5 percent on the highest earners. Gov. Phil Murphy and legislative leadership agreed in June 2018 as part of a budget deal to raise it from 9 percent for two years and then to 10.5 percent for another two years. That rate is second only to Iowa’s 12 percent, according to the report.
New Jersey also has the second-highest income tax 10.75 percent for those earning above $5 million trailing Hawaii with its 11 percent rate.
The rate is 1.4 percent on incomes up to $20,000; 1.75 percent for $20,000 to $35,000; 3.5 percent for $35,000 to $40,000; 5.525 percent for $40,000 to $75,000; 6.37 percent for $75,000 to $500,000 and 8.97 percent above $500,000.
Murphy tried unsuccessfully in 2018 and 2019 to enact a millionaire’s tax, which would levy the 10.75 percent rate on every dollar earned above $1 million.
In 2018, lawmakers approved a so-called mega-millionaire’s tax for earners above $5 million, but would not budge the following year. Murphy has hinted that he would still like to see a millionaire’s tax enacted.
New Jersey’s 6.625 percent sales tax fared moderately better in the report, ranking 42nd. Five states - Alaska, Delaware, Montana, New Hampshire, and Oregon impose no sales tax.
The Murphy administration also tried unsuccessfully to bump the sales tax back up to 7 percent, after former-Gov. Chris Christie, a Republican, allowed for a minor decrease as part of the 2016 deal to raise the gas tax.
But Murphy met pushback from legislative leadership, including Senate President Stephen Sweeney, D-3rd District, one of his chief political foes.
The Tax Foundation calculated “per capita property tax collections” and the “effective property tax rate,” which respectively were the highest at $3,127 and the third-highest at 5.05 percent.
As part of the 2017 federal tax law, the Trump administration and Congress capped state and local property tax deductions at $10,000, a move that hit high-tax states such as New Jersey, where yearly tax bills can sometimes be double that amount.
The study also noted New Jersey’s taxation of assets parked overseas, known as global intangible low-tax income (GILTI) at 50 percent. A CBT clean-up bill in October 2018 reduced the taxation rate from 100 percent, but it nonetheless drew the wariness of business advocates.
“New Jersey is now the only state, other than Maine, to have specifically considered, and affirmatively decided to tax 50 percent of GILTI,” which makes the state an “outlier in its tax treatment” of GILTI, New Jersey Business and Industry Association President Michele Siekerka said in an October 2018 statement.
Siekerka said it was “not surprising” to see New Jersey’s 2019 ranking, adding that the state “will continue to drive away businesses and residents” because of its taxation policy.
Murphy has often called New Jersey a “good value for money state.” Higher taxes and cost of living translate to a K-12 system often ranked first or second in the country. And the governor cites proximity to the massive New York City and Philadelphia labor pools, a highly educated workforce, and access to Interstate 95 and Newark Liberty International Airport, one of the largest in the country.
“New Jersey has tremendous assets that we are extremely proud of, but ... we are beyond paying a super-premium for these advantages,” Siekerka added.
Murphy, though, tries to shift the focus beyond taxation. “If you’re a one issue voter and tax rate is your issue, either a family or a business, if that’s the only basis upon which you’re going to make a decision, we’re probably not your state,” he said at an Oct. 1 roundtable at Rowan University.
That prompted pushback from Senate President Steve Sweeney, D-Third District. “So if you’re a single issue voter and taxes are your issue then New Jersey’s not your state? I don’t know how to react to that,” Sweeney said at a press conference days later.
Sweeney said he was not surprised by the report from the Tax Foundation.
“We have a horrible tax structure and we’ve got to fix it,” he said at an unrelated event on Oct. 22 at Newark Airport.
The Senate president has advocated cuts to the public worker pension and health care systems, as well as the consolidation of many local services.
His proposals collectively dubbed the Path to Progress include merging small school districts into regional systems and regional sharing agreements for local services such as public works.
Sweeney also calls for the creation of a hybrid of a 401k-style retirement plan and a defined benefit plan for public workers with less than five years of service, as well as shifting health care coverage from the equivalent of a platinum level of coverage under the Affordable Care Act to a gold level.

CREDIT: Daniel J. Munoz