When news broke earlier this year that New Jersey lost hedge fund billionaire David Tepper to the lower-tax state of Florida, it seemed to provide a great example for those who argue New Jersey needs to cut taxes to prevent an epidemic of outmigration.
But a new report released by a liberal think tank yesterday made the case that those outmigration alarms may have been overstated; it cites figures that show New Jersey’s millionaire population has actually grown by some 30,000 households over the last decade.
The report from Trenton-based New Jersey Policy Perspective (NJPP) also noted that two taxes that are supposed to be driving residents away in droves – estate and inheritance taxes — instead are projected to bring in a record haul for the state budget in the next fiscal year.
The release of the NJPP report comes just as lawmakers in Trenton are considering implementing a series of tax cuts in a bid to make the state more affordable, particularly for higher-income residents who provide a good portion of the overall revenue for the budget each year. A proposal to phase out New Jersey’s estate tax was already passed with bipartisan support by a key Senate committee this year. Whether the new data from NJPP causes lawmakers to reconsider remains to be seen.
Michele Siekerka is president of the New Jersey Business & Industry Association (NJBIA), an influential Trenton-based business-lobbying group that has been leading the charge for tax cuts after releasing its own study of outmigration Siekerka said yesterday that she remains unconvinced by the alternative analysis in the NJPP report.
The debate over the role that state tax rates may play in the decision-making process for those who are choosing to leave New Jersey kicked off in earnest at the beginning of the year when the NJBIA’s study showed the state lost nearly $20 billion in adjusted gross income between 2004 and 2013. That loss occurred as roughly two million residents left the state for those with more hospitable tax policies, including neighboring Pennsylvania, according to the report.
The business group made a series of recommendations, including calling for relief from the state’s estate and inheritance taxes, as well as its tax on pensions and other sources of retirement income. Gov. Chris Christie added his voice to the debate in January; he called for a repeal of the estate tax.
Those tax-cutting efforts seemed to get a boost several weeks later after Bloomberg News reported that the billionaire Tepper had moved from Short Hills to Florida. While there is no income tax at all in Florida, New Jersey levies a top-end rate of 8.97 percent. New Jersey is also one of only two states to levy taxes both on the estates of the deceased and on those receiving an inheritance. Florida has neither tax on its books.
Acting State Treasurer Ford Scudder told lawmakers during a budget committee hearing in April that by some estimates Tepper alone provided the state with $50 million in annual income tax thanks to his immense wealth. And he pointed specifically to Tepper’s departure during a discussion of the impact of the estate tax, which in New Jersey begins at $675,000, the lowest threshold of any state in the country.
“Think of all the different services that that ($50 million) could have provided,” Scudder said. “The estate tax, I guarantee you, does cause people to make that move.”
But Bloomberg News, according to a source in its story indicated Tepper’s move was motivated less by state tax policies than family reasons, including a recent divorce. The impact of a looming accounting deadline set by the federal government for offshore hedge-fund fees also played a role, the story said.
The NJPP report released yesterday included data collected by a wealth-management firm that showed the number of millionaire households in New Jersey increased from 207,693 in 2006 to 237,064 last year. That gain of almost 30,000 boosted the share of millionaires in the state’s population from 6.5 percent to 7.2 percent, the report said.
The think tank’s report follows data released earlier this year by the state Office of Legislative Services that also showed gains among New Jersey’s wealthiest taxpayers over the past decade. Tax returns filed by those earning $500,00 or more reached an all-time high in 2012, the most recent year for which there is complete data, according to the OLS, the Legislature’s nonpartisan research arm.
The loss of two million residents that provided a foundation for last year’s NJBIA report told only part of the story, said Sheila Reynertson, NJPP’s senior policy analyst. The number of people coming in from other states and other countries almost made up for the two million who left, she said.
Reynertson, the author of the NJPP report, also cited U.S. census data that indicates people who choose to relocate from one state to another typically do so for job or family reasons, not to escape high taxes. She noted that in New Jersey, revenue from the estate and inheritance taxes are expected to increase from $828 million in the current fiscal year to $848 million during the fiscal year that begins July 1.
That means there’s no justification for cutting taxes like the estate tax, Reynertson said. “Trickle-down economics don’t do a thing to help the middle class or working-class families,” she said.
Asked for a response, Michele Siekerka, of the NJBIA, defended her organization’s study, saying it still demonstrated the loss of $18 billion in adjusted growth income over a decade, including $3 billion in 2013 alone.
“(That’s) a heck of a lot of money,” Siekerka said. “Let’s not fool ourselves that taxes don’t have something to do with these things.” Siekerka also took also issue with NJPP’s reliance on federal census data that she doesn’t find convincing. And she said the fact that New Jersey is adding millionaires should be celebrated. “We shouldn’t be disregarding that or saying it’s a bad thing,” Siekerka said.