Op-Ed: Four Practical Ways for New Jersey to Raise New Revenue

Jon Whiten | April 6, 2017 | Opinion
Instead of scores of groups fighting for tiny scraps of an ever-shrinking funding pie, NJ needs to make that pie larger

Jon Whiten
This spring at public hearings, lawmakers on New Jersey’s budget committees listened to a long line of advocates from across the state with a long list of underfunded priorities. The needs, the concerns, and the spending asks of most were not too different from last year. Or the year before. Or the year before that.

It’s time to break this pattern. Instead of the annual ritual of scores of groups with important needs fighting for tiny scraps of an ever-shrinking pie of funding, New Jersey needs to take a serious look at making that pie larger.

And make no mistake: the pie has indeed been shrinking. Tax cuts for businesses and the state’s wealthiest families enacted toward the start of this decade have cost New Jersey between $7 billion and $10 billion in revenue since. And the ill-advised tax cuts passed last year will only serve to shrink the pie even more, to the tune of over $1 billion a year by the time 2019 rolls around. It’s no wonder the state faces chronic revenue shortfalls like the $436 million hole the Office of Legislative Services is estimating for the next 15 months.

And the pie will likely get even smaller this year, thanks to the slash-and-burn budget policies of the Trump administration. The president’s extreme proposal effectively ends the federal-state partnership. The pressure on the state to pick up the tab will be enormous, but covering even a sliver of the lost funds will be impossible without new revenue. The state already can’t meet its current obligations, let alone fill in the holes dug by a radical Trump budget.

Now is the time for action — not next year when New Jersey will be in an even deeper hole. Now is the time for lawmakers to raise new revenue.

When doing so, it’s important to focus on equity: Does the state ensure wealthy individuals and corporations don’t get disproportionate breaks and advantages compared with low-income and middle-class households? The four practical policy solutions below surely pass that test, and could raise well over $2 billion a year in new revenue for New Jersey:

  • First, increase income tax rates on the top 5 percent of highest-income New Jersey households. Modeled on California’s successful 2012 tax increases —which have so far generated more than $35 billion for key investments in higher education, healthcare, and restoring that state’s fiscal solvency — our income tax proposal would add four new brackets to our state income tax code, and generate over $1 billion a year in new revenue.
  • Next, close a corporate tax loophole that allows multistate corporations to pay lower taxes than our own small businesses by shifting profits made in New Jersey to subsidiaries in no- or low-tax states. Doing so would raise up to $290 million in new revenue in each year.
  • Third, roll back last year’s sales-tax cut. It’s no secret that most New Jerseyans will hardly notice the cut. For example, families in the middle of the income scale will save an average of $1.65 a week. Yet the harm on all of us will be profound, with the state set to lose $600 million a year or more each year once the cut is fully phased in.
  • And last but not least, restore fair and adequate taxation of inherited wealth. Last year, New Jersey delivered a huge gift to the heirs of the state’s wealthiest families — and a blow to everyone else — by eliminating the estate tax. This gives a few thousand wealthy heirs a huge tax break while draining the state of about $500 million a year. New Jersey ought to either restore the estate tax by bringing it back with a slightly higher threshold or expand the related transfer-inheritance tax to affect direct heirs (such as children and grandchildren) while raising the threshold at which this tax kicks in to protect lower- and middle-income heirs. Restoring fair and adequate taxation of inherited wealth could generate anywhere from $200 million to $500 million in revenue each year.
  • Beyond these four policy proposals, there are plenty of other solutions that ought to be on lawmakers’ lists. Here are a few: applying the sales tax to services used most heavily by families with greater means (like interior designers, accountants, or bookkeepers); legalizing, regulating, and taxing marijuana; and working with other states to close the “carried interest” loophole at the state level — or, when the time comes, to “repatriate” big federal tax cuts for wealthy New Jerseyans.

    New Jersey’s lawmakers have two paths from which to choose.

    Inaction means that next year’s budget hearings will be a reprise, with many of the same advocates fighting for even fewer and smaller scraps from an ever-shrinking pie of resources.

    The smarter path — one of tax fairness and budget adequacy — means that New Jersey can finally start to collect the revenues it needs to provide essential services, help those who are struggling, and invest in the building blocks of a strong economy. The results might not be automatic, or immediate — but make no mistake, there will be results: a stronger, fairer, and better state.