The elimination of the estate tax was one of the key provisions of the recently enacted law that increased the gas tax but reduced taxes in several other key areas, including taxes on pension income for retirees.
Getting rid of the estate tax has been a very high priority for the New Jersey Business & Industry Association.
First, the name “estate tax” is very unfortunate. The name itself connotes wealth — yachts, country clubs, private schools and heirs. Although the opponents of estate tax elimination would surely like it to be so, the estate tax is really about none of these things.
New Jersey is only one of two states with both an estate tax and inheritance tax and its estate tax has the lowest threshold in the nation at $675,000. This means that if a small business is worth more than that — as many are— or if a taxpayer owns a home, has a life insurance policy and a small 401k, they are likely over that limit and will be taxed.
In particular, the estate tax hurts business succession planning, most specifically with family- owned businesses. It’s not uncommon for a family-run business to have to sell business assets in order to pay the estate tax bill. In our 2016 Business Outlook Survey, two-thirds of our members said they take the estate and inheritance taxes into account when making business decisions and that they would not retire in New Jersey.
Opponents of the estate tax elimination are fond of pointing out that general fund revenue would be lost if the estate tax was eliminated. To only fixate on the potential lost revenue completely misses the point. Rather, we need to focus on the revenue that would be kept in state if residents did not leave to avoid the tax.
NJBIA has found that this amount is significant.
If just 20 percent of the taxpayers older than 45 who left the state in 2013 had stayed it would have resulted in an additional half a billion dollars in adjusted gross income that would have stayed here, flowing through the economy along with over $300 million in economic activity.
As we have learned, outmigration is a significant issue that is hurting New Jersey and its economy. The state’s tax burden is a significant factor. New Jersey is now at or near the bottom of every category including, income, sales, property, corporate and estate and inheritance taxes. And where do the residents go? While the naysayers are fixated on Florida, it is actually Pennsylvania and New York that are the top two outmigration states, both of which fare better on these taxes than New Jersey.
During the last 11 years we have lost a total of $20.7 billion in net adjusted gross income. The loss of these funds resulted in a loss of $13.1 billion in economic output, nearly 87,000 jobs, and $4.6 billion in total lost labor income.
The elimination of the estate tax is an important signal that New Jersey is finally serious about addressing real tax reform and the issues that impact affordability for our businesses and residents. It is only the first step in what we hope will be an ongoing discussion about comprehensive tax reform in which we take a deep dive and look closely at how we raise revenue and, most importantly, how we spend that revenue.
We thank our courageous policymakers for taking this very necessary step toward comprehensive reform. NJBIA will continue the difficult and challenging work of making New Jersey affordable for businesses and for families.