How to Succeed in Business? Don’t Come to New Jersey, Group’s Annual Survey Says

John Reitmeyer | November 18, 2015 | More Issues
Garden State once again ranks last among U.S. states, according to conservative think tank, due to heavy tax burden

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New Jersey has once again been ranked dead last in an influential conservative group’s ranking of U.S. states with the best tax policies for businesses.

The combination of onerous income-tax, property-tax and sales-tax policies all helped to keep New Jersey ranked 50th by the Tax Foundation in its 2016 State Business Tax Climate Index, which was released yesterday.

The Washington, D.C.-based organization also noted that New Jersey, which was ranked 50th last year as well, is one of only two states to levy both an estate tax and an inheritance tax, something business groups here have long complained about.

New Jersey’s continued poor showing in the survey comes even as Gov. Chris Christie, a second-term Republican now running for president, has tried to make the case that he’s made the state more competitive since taking office in early 2010.

The organization’s list also comes out amid an ongoing debate about tax policy in New Jersey, with many lawmakers now saying the state’s gas tax must be increased to bring in more revenue for transportation infrastructure, while others say any deal on transportation funding must also involve new tax cuts.

Critics of the Tax Foundation’s analysis, which is based on more than 100 tax variables across five categories, said that despite the state’s poor showing in the new rankings, now is not the time to consider new tax cuts that would only benefit businesses.

The Tax Foundation, which has compiled its comparative list for the last 12 years, says the state-by-state rankings give business leaders, government policymakers and taxpayers a way to see how well their state’s tax structures match up against other states, encouraging improvements and tax reform.

“Substantive state tax reform has gained a lot of momentum over the past few years,” said Jared Walczak, a Tax Foundation policy analyst.

“The stagnation of our federal tax code means that policymakers are turning to state codes to boost their national and global competitiveness,” he said. “The state codes are ripe for reform and, it’s encouraging to see many states taking action.”

States that fared the best in the Tax Foundation’s analysis for 2016 were Wyoming, South Dakota, Alaska, Florida and Nevada.

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New Jersey dropped into the 50th slot last year, after spending two straight years ranked 49th. This year, New Jersey came in last among states on property taxes, 48th on income taxes and 47th on sales taxes. It also ranks 43rd on corporate taxes and 31st on unemployment insurance taxes.

“New Jersey . . . is hampered by some of the highest property tax burdens in the country, is one of just two states to levy both an inheritance tax and an estate tax, and maintains some of the worst-structured individual income taxes in the country,” the 2016 report said.

Among other states that ranked poorly this year were New York, California, Minnesota, Vermont and Rhode Island. This year’s report also highlighted tax-reform efforts that could result in states like Rhode Island and New York, where corporate tax rates are being lowered, moving up in the rankings.

New Jersey has struggled in recent years to recover all of the jobs lost to the last recession, but Gordon MacInnes, president of New Jersey Policy Perspective, a liberal think tank based in Trenton, said a lot more goes into how hospitable a state is to businesses than just tax policy.

New Jersey has not lost jobs to the states with lowest tax rates or those with none at all, MacInnes pointed out.
That’s because it has good schools and universities, and is ideally situated between the New York and Philadelphia job markets, he said.

“This study makes one thing perfectly clear: a state’s ‘business tax climate’ has practically no connection to the measurement that actually matters, a state’s ‘business climate,’ MacInnes said. “In other words, taxes are merely a small piece of a larger puzzle and aren’t close to being the main, let alone the whole, story.”

“Cutting tax rates and public services surely won’t do the trick,” he said.
Christie has tried to focus on economic development reducing regulations and implementing a series of business tax cuts and lucrative corporate tax incentives.

But even as he’s argued this year, while seeking the GOP’s 2016 presidential nomination, that he has the leadership ability to turn around Washington, D.C., Christie has been unable to convince Democratic legislative leaders in Trenton for the last five years to lower rates and simplify the taxes that are highlighted by the Tax Foundation in its rankings.

Christie’s office did not respond to NJ Spotlight’s request for comment on the Tax Foundation’s new rankings yesterday.

[related]Even as the new list points to New Jersey’s high tax burden, state lawmakers are considering raising the 14.5-cent gas tax to help shore up the Transportation Trust Fund, which pays for road, bridge and rail projects throughout the state. Due to payments required to pay down the trust fund’s significant debt, it will no longer have enough money for new projects by June 30, 2016, unless the gas tax is increased or some other source of revenue is identified.

Democratic legislative leaders are expected to propose a gas-tax increase, which right now is the second-lowest among U.S. states, according to the Tax Foundation. The proposed hike is expected to be coupled with a constitutional requirement that the new revenue only be used for transportation projects.

But Christie and other Republicans have called for a deal that also results in more “tax fairness,” arguing any agreement should also involve lowering some other tax, such as the estate tax or inheritance tax.