A recent public opinion poll revealed an overwhelming number of New Jersey voters would support hiking taxes on those with incomes over $1 million if the new revenue is used to boost education aid or increase public-employee pension payments, two areas the state has been underfunding by billions of dollars in recent years.
But the results of a new survey of New Jersey’s certified public accountants raised concerns that such a change in tax policy could ultimately deliver a bad outcome for the state budget, especially if it chases wealthy residents and small-business owners out of New Jersey to other states with lower tax rates.
The rekindling of the debate over just how much New Jersey should be taxing its wealthiest residents comes just as lawmakers are evaluating Gov. Chris Christie’s latest state budget proposal. Christie’s $35.5 billion spending plan for the new fiscal year that begins in July holds the line on taxes, which has drawn praise from Republicans, but also continues the practice of underfunding the state’s school aid and pension contributions, which is something many Democrats have criticized.
And while Christie, a second-term Republican, is unlikely to approve a new tax rate for New Jersey’s millionaires before he leaves office early next year — he’s already vetoed numerous attempts by Democratic legislative leaders in recent years — a number of the candidates who are running for governor this year have already said they will be ready to do so. That means a millionaire’s tax could already be in place by this time next year as the next state budget is coming together.
Corzine set rate of 10.75% on earnings over $1M
Right now, New Jersey’s highest marginal tax rate is 8.97 percent, and that rate is charged on every dollar someone earns over $500,000. The top-end rate was last increased permanently in 2004 by then-Gov. Jim McGreevey. It was billed at the time as a “millionaire’s tax” under the logic that those earning more than $500,000 annually likely had a net worth of at least $1 million.
Former Gov. Jon Corzine established a temporary top-end tax rate of 10.75 percent on earnings over $1 million in 2009 as New Jersey struggled to keep up with revenue losses amid the Great Recession. But that true millionaire’s tax was allowed to “sunset” before Christie took office in January 2010, though Christie is often incorrectly blamed for not extending it.
Democrats have tried on five separate occasions to convince Christie to reinstate the 10.75 percent rate, but the governor has vetoed their legislation each time, and once just minutes after the bill received final legislative approval. Christie has argued that taxing millionaires at a higher rate is bad for the overall state economy, especially since the income tax is the largest source of revenue for the state budget.
But estimates prepared in recent years by the nonpartisan Office of Legislative Services indicate New Jersey could generate as much as $615 million in new revenue by once again taxing income over $1 million at a rate of 10.75 percent. And research conducted by New Jersey Policy Perspective, a liberal think tank based in Trenton, suggests that Christie’s vetoes have led to the state forgoing between $4.2 billion and $7 billion in tax revenue between 2010 and 2016.
This year, the think tank has proposed a reform of New Jersey income tax rates that would establish four new tax brackets, including a rate of 10 percent on income between $1 million and $2.5 million, and 11 percent on earnings above $2.5 million. Such a change could generate $1 billion in new revenue annually while still leaving New Jersey’s top-end rate below California’s 13.3 percent rate, said Jon Whiten, NJPP’s vice president.
Big gap between wealthy ‘and the rest of us’
“The gap between the wealthy and the rest of us in New Jersey is as large as it’s been in nearly 100 years, while too many families and children struggle in poverty,” he said. “Garden Staters are hungry for real solutions.”
Last month, Quinnipiac University released the results of a recent poll of New Jersey voters that showed widespread support for making the state’s millionaires pay more in income taxes if it meant increased funding for education or the pension system, which was recently named the nation’s worst-funded state retirement plan by Bloomberg. For some context, New Jersey has been underfunding the state school-aid law by at least $1 billion yearly under Christie, and the pension contribution that’s scheduled to be made at the end of June measures just 40 percent of the payment that actuaries say is needed to bring the retirement plan closer to solvency.
When it comes to increasing state pension contributions, 66 percent of those polled by Quinnipiac said they opposed hiking taxes across the board to help the retirement plan. But 70 percent said they would support increasing the rate paid by millionaires to do so. Another 74 percent said they would support hiking taxes on millionaires to boost education spending.
Maurice Carroll, assistant director of the Quinnipiac University Poll, noted that in New Jersey “there’s one tax-raising plan that almost everyone likes — the millionaire’s tax.”
Millionaire’s tax likely under Democratic governor
If a Democrat wins the 2017 gubernatorial election, it’s likely that some form of a millionaire’s tax will be enacted to bring in more revenue. Democratic candidates Phil Murphy and John Wisniewski are backing higher taxes on millionaires, and another Democrat, Ray Lesniak, has sponsored legislation to do so while serving in the state Senate.
A spokesman for Democrat Jim Johnson said yesterday that the former U.S. Treasury official is open to a higher rate if the proceeds go to funding education, which is also where Wisniewski, a state assemblyman from Middlesex County, would allocate any new revenue. Meanwhile, Republican hopeful Jack Ciattarelli, a state assemblyman from Somerset County, has also called for “restructuring” tax rates for those making over $750,000.
But Ralph Albert Thomas, executive director of the New Jersey Society of Certified Public Accountants, said a recent survey of his organization’s members found that 56 percent oppose hiking the millionaire’s tax to raise funds to boost the pension system, compared to 33 percent who would support it.
Thomas said the members of his organization have concerns about the broader impact the higher tax rate could have on the state as wealthy residents and small-business owners are tempted to move to states with lower tax burdens. New Jersey is already regularly ranked among the states with the least-friendly business policies.
‘…you don’t have to be domiciled here’
“People are going to look for another haven to plant their feet,” Thomas said. “You can always come back and visit, but you don’t have to be domiciled here.”
And though the general perception may be that the accountants are only interacting with New Jersey’s wealthiest residents, Thomas said they have a “pulse read” on a much broader swath of the state’s population. “They’re in contact with Main Street New Jersey all the way up to people in the upper echelon,” Thomas said.
But Whiten, the NJPP vice president, suggested the notion that millionaires leave New Jersey due to a high tax burden is overblown. New Jersey has been adding millionaires over the last decade at a higher rate than general population growth, he said. Whiten also noted “there are plenty of very, very rich people who still choose to call California home, despite that state having the highest income tax rates in the nation.”
“The same is true in New Jersey,” Whiten said.