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NJ's ‘Tax Freedom Day’: Is It Something -- or Nothing -- to Celebrate?

Tax Foundation argues NJ residents should be able to pay off all taxes by mid-May, but critics contend math is flawed and thinking shortsighted

Credit: Tax Foundation
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Like taxpayers across the nation, those in New Jersey generally have until Wednesday to file their tax returns. But it’s another date -- one that falls a month from today for New Jersey taxpayers -- that conservative groups are trying to bring more attention to.

That’s the date on the calendar they say represents when New Jersey taxpayers will have earned enough money to pay off all of their state, federal, and local taxes.

This year, “Tax Freedom Day” as the groups call it, will fall on May 13 for New Jersey taxpayers, according to the latest rankings compiled by the Washington, D.C.-based Tax Foundation. Last year, New Jersey’s Tax Freedom Day was May 9.

New Jersey this year is tied with Connecticut for having the latest Tax Freedom Day, according to the group’s new rankings. Taxpayers in Mississippi and Louisiana, meanwhile, had to work the fewest days to pay off their total tax burdens this year, with their Tax Freedom Day falling on April 2.

And the national Tax Freedom Day calculated by the Tax Foundation this year is April 24. That date is determined by measuring the $3.3 trillion in federal taxes that will be paid this year in addition to $1.5 trillion in state and local taxes as a percentage of the nation’s more than $15 trillion total income. It would be even later if debt -- what the organization considers to be deferred taxes -- were factored in, the group said.

In New Jersey, the tax issue is among those that voters consistently tell pollsters they care most about. And while New Jersey has a reputation for levying high taxes, the issue is a bit more complicated.

New Jersey’s average property tax bills are perennially the highest in the nation. The state’s top-end income tax rate is the sixth-highest among states and corporate taxes are 10th-highest, according to the Tax Foundation’s rankings. New Jersey is also one of only two states to levy both estate and transfer-inheritance taxes, and at $675,000, New Jersey’s estate-tax exemption is the lowest among all states and far lower than the federal exemption, which is $5.43 million this year.

But New Jersey ranks only in the middle of the pack with a 7 percent sales tax, and its 14.5-cent gas tax is the second-lowest in the country, behind Alaska, according to the group’s rankings.

And though Gov. Chris Christie won the past two gubernatorial elections while pledging not to raise taxes, New Jersey voters, even though he’s largely lived up to that promise, only gave him a 26 percent approval rating on the tax issue in the latest Rutgers-Eagleton Poll released last week.

The notion of a Tax Freedom Day is to help taxpayers better understand how much they pay “for the goods and services provided by governments at all levels,” said Kyle Pomerleau, a Tax Foundation economist.

“Arguments can be made for if and why the tax bill is too high or too low, but in order to have an honest discussion, it’s important for taxpayers to understand cost of government,” he said. “Tax Freedom Day helps people relate to that cost.”

But others say the concept is too simplistic and doesn’t factor in the value taxpayers receive for their annual investment, such as military protections and medical-drug testing that benefit all taxpayers.

The Center on Budget and Policy Priorities, a liberal Washington, D.C.-based think tank, in a 2013 report dissected the methodology that Tax Freedom Day relies on.

Most low- and middle-income taxpayers pay a smaller share of their overall income in taxes than the average that’s calculated by the Tax Foundation. Thus, the group concluded that the Tax Freedom Day measurement gives a false impression of the total tax burden since it’s skewed by a small group of the wealthiest taxpayers.

“In a progressive tax system like that of the United States, only upper-income households pay federal tax rates that are equal to or above federal revenues as a share of the economy,” the group said in its study.

That effect is likely magnified in New Jersey, one of the nation’s wealthiest states.

Jon Whiten, deputy director of New Jersey Policy Perspective, a left-leaning think tank based in Trenton, said the notion that residents here are spending part of their year working to pay off their taxes before getting “freedom” from the government is “nonsensical.”
“Worse, it's being used to drive a broader anti-tax agenda that would cripple the state's economy and harm its ability to invest in assets that provide real opportunities to New Jersey families,” he said.

“Taxes are the shared investment we make as a society to pay for services that we all use each and every day,” Whiten said. “Freedom does not, and should not, mean having no public parks or schools, paying tolls on every road and not having able police and firefighters to help us when we most need help.”

But Erica Klemens, state director of the conservative Americans For Prosperity organization, said New Jersey’s showing on the Tax Foundation’s list should inspire leaders here to focus more on providing tax relief.

“New Jersey is losing residents and losing companies because we are uncompetitive and our tax burden is too high,” she said. “The only way economic conditions will improve here is when we are closer to the top -- not at the bottom -- of the Tax Freedom Day rankings.”

“It’s long overdue for elected leaders in Trenton to work towards making that a reality by reining in spending in Trenton and making it easier for our residents to succeed and prosper,” she said.

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