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June 27, 2011

Is New Jersey the eighth most-taxed state or is it No. 1?

It depends on whose numbers you believe. New Jersey Policy Perspective (NJPP), a liberal-leaning think tank, crunched the numbers and said, contrary to popular belief, that the Garden State is in no way the most-taxed state in the nation. The conservative-leaning Tax Foundation, however, says New Jerseyans have a state and local tax burden that gives them the dubious distinction of being number one. The average for the country, according to the NJPP, is 10.9 percent; the Tax Foundation says it’s 9.8 percent.

The thing is, when it comes to New Jersey, the percentage of local tax burden as a percent of personal income isn’t all that different: the NJPP says New Jerseyans pay 12.1 percent of their income in state and local taxes; the Tax Foundation calculates it at 12.2 percent.

What’s different is how they rank other states. For instance, Alaska, according to the NJPP has the highest local taxes in the country, at 33.2 percent. The Tax Foundation says it has the lowest, at 6.3 percent. Alaska has no personal income tax and no general-use sales tax, but it does have relatively high property taxes -- both state and local.

How can the disparity be so wide? The NJPP says it's because the Tax Foundation doesn’t take into account municipal taxes, and New Jersey bars municipalities from local taxation other than property taxes. In many other states, both large and small, municipalities can levy both income and sales taxes. New York, for example, has both a local sales tax and a local income tax. (The NJPP ranks New York number two, with a 15 percent tax burden as a percent of income.) Indeed, New York raises another issue for the NJPP. It says the Tax Foundation counts the $2.6 billion in local New York income taxes that New Jersey sends to New York each year. New Jersey neither has control of nor has the use of that money, according to the NJPP, so it should count against New York, rather than New Jersey. Indeed, the NJPP notes that the sum is larger that what the state collects in corporate taxes and represents one of the largest income transfers from one state to another in the country.

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