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Op-Ed: In NJ, as in Nearby States, Competitiveness Drives Affordability

The only way to stem our tide of outmigration is to bring our economic policies in line with our direct regional competitors — Pennsylvania and New York

michele siekerka NJBIA
NJBIA president and CEO Michele Siekerka

New Jersey has many positive attributes. We added almost 60,000 jobs in 2016, the state’s largest gain since 2000, according to the New Jersey Department of Labor and Workforce Development. We have among the best K-12 public education systems in the nation and a highly skilled workforce including the highest concentration of scientists and engineers in the world — more than 225,000 statewide.

New Jersey also has a strong transportation network. We are home to the Port of New York and New Jersey, the third largest seaport in North America and the largest and busiest maritime cargo center on the East Coast. And we are among the national leaders in logistics and distribution. New Jersey is also a great recreation state with more than 130 miles of shoreline, beautiful parks, and mountains.

Despite these great assets, New Jersey remains a significant outlier, both nationally and regionally when comparing competitiveness and affordability including our state’s high cost of living and its heavy tax burden. New Jersey’s border states, Pennsylvania and New York, continue to be the No. 1 and No. 2 outmigration states for New Jersey residents and are challenging our competitiveness.

To reverse this trend we must examine our policies on taxation, revenue generation, and spending, and we must do so through the filter of competitiveness and affordability.

Outmigration by the numbers

In February 2016, the NJBIA issued Outmigration by the Numbers: How do we Stop the Exodus? This report found that New Jersey lost $18 billion in net-adjusted gross income over a decade. We have now updated this data to include 2015 data and have learned the loss has since grown to nearly $21 billion over 11 years (2004-2005 through 2014-2015). Further, we found the largest outmigration group continues to be millennials followed second by those nearing retirement and retirees.

Last November, New Jersey took the first step in the long road toward comprehensive tax reform by phasing out the estate tax and sharply increasing the income tax exclusion for pension and retirement income. The estate tax elimination and the pension tax reduction should help stem the outmigration of seniors and small businesses. While this is a good start, there is much more that must be done.

New Jersey ranks in the bottom six of every single tax category — income, property, sales, corporate, and inheritance. And we are in the bottom 10 of all states in combined state and local debt. Further, New Jersey residents pay the fifth-highest percentage of their household income on rent of any state and pay the fourth-highest median monthly rent of any state.

New Jersey’s top income tax rate is 8.97 percent and ranks as the sixth highest in the country. Our neighbors to the north and the west offer a better income tax rate than we do, with New York’s top income tax rate at 8.82 percent and Pennsylvania’s income tax rate flat at 3.07 percent.

Out-of-control property taxes

New Jersey has an average property tax bill of $8,549 and collects $2,924 per capita in property taxes, both of which are the highest in the nation. New York at $2,435 and Pennsylvania at $1,338 per capita are considerably lower than New Jersey, as is the national per capita of $1,300.

New Jersey has the fifth-highest corporate income tax (9 percent) in the nation. New York ranks 24th, offering a lower corporate tax rate of 6.5 percent. While Pennsylvania has a higher corporate income tax rate at 9.9 percent, it has a much more favorable personal income, property, and inheritance tax climate that offsets this tax impact.

While New Jersey is in the process of eliminating the estate tax by 2018, we still have an inheritance tax. Only five other states — Nebraska, Kentucky, Iowa, Pennsylvania, and Maryland — even have an inheritance tax. Further, while Pennsylvania has an inheritance tax, the state mitigates the impact of this tax on small businesses.

New Jersey’s debt picture is no different than its tax climate. We are near the bottom of the national rankings in every debt category. Overall, as of June 30, 2015 the state had more than $153 billion in bonded and nonbonded indebtedness according to the fiscal year 2015 state debt report.

The state’s high level of debt and the need to generate revenue to pay off the debt is a major factor that affects the ability to lower the state’s tax burden to improve the level of affordability for individuals, families, and businesses. However, we can no longer increase our tax burden in order to raise revenue to pay down this enormous debt. This would only make New Jersey even less competitive and would surely feed into an exit strategy for New Jersey businesses and residents.

The time is now to revisit and completely review our economic policies on taxation, revenue generation, and spending and we must do so with a sense of urgency. We must look at how we spend our tax dollars and be honest about the fact that our current economic paradigm is just not sustainable. Failing to do so now will compound the problem for the generations to come.

The only way to stem our tide of outmigration is to bring our economic policies in line with our direct regional competitors — Pennsylvania and New York. Becoming more competitive means becoming more affordable so that businesses will want to locate here and taxpayers will want to live here.

Michele Siekerka is the president and CEO of the New Jersey Business & Industry Association.

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