Standing across the street from the State House yesterday, Franklin Lakes resident Eric Schoenberg had a message for legislative leaders who continue to resist Gov. Phil Murphy’s call to hike taxes on those who earn more than $1 million.
Schoenberg — who is a millionaire — said he doesn’t believe the arguments that higher state income taxes and recent changes to the federal tax code will conspire to chase away wealthy people who produce a major share of the state’s overall revenue stream.
“I don’t agree with their underlying premise,” he said during a news conference.
Instead, Schoenberg suggested New Jersey’s millionaires care more about the overall health of their state’s finances than one or two percentage points changing on their tax forms. Murphy’s proposal, which is part of his budget plan for the 2019 fiscal year, would see the state levy a new rate of 10.75 percent on earnings over $1 million, instead of the current top-end rate of 8.97 percent.
“My paying an extra few points of taxes is not going to affect my lifestyle in any way,” said Schoenberg, who is a member of the Patriotic Millionaires, a Washington, D.C.-based organization that advocates for fair taxes and against wealth concentration.
Reluctant to go along with Murphy
Schoenberg’s trip to Trenton yesterday came amid last-ditch lobbying by those on both sides of the debate on a millionaires tax. While polls suggest Murphy’s proposal is popular with voters, the first-term Democrat has yet to convince Democratic legislative leaders to go along, even as the state’s June 30 deadline for a new budget is just two weeks away. What happens next is perhaps the most important budget issue left to resolve as Murphy is planning on the millionaires tax raising $765 million in new revenue, a substantial sum for lawmakers to offset with major spending cuts, or to come up with in some other way.
Currently, the state’s highest marginal income-tax rate is levied on every dollar someone earns over $500,000, not $1 million; nearly 64,000 New Jersey residents earn over $500,000 annually, according to the latest statistics from the nonpartisan Office of Legislative Services. They accounted for about 1.5 percent of the total returns collected by the state in 2015, the most recent year for which there is complete data. But that same group produced nearly 24 percent of the gross income and 41 percent of tax payments, according to OLS.
Murphy has proposed a rate of 10.75 percent to be assessed on every dollar someone earns over $1 million but, under New Jersey’s existing income-tax structure, the wealthiest residents would continue to pay taxes at the 8.97 percent rate for earnings between $500,001 and $1 million. And while an estimated 20,000 residents make more than $1 million annually in New Jersey, another nearly 20,000 people who don’t live in New Jersey earn more than $1 million here, paying income taxes here as well, according to the Department of Treasury.
Murphy ran successfully for governor last year by highlighting fiscal issues, and his platform included the exact millionaires tax proposal that’s now on the table. As governor, he’s consistently said raising more cash from high earners, who generally stand to benefit from the recently enacted federal-tax overhaul, will help the state generate more money for much-needed investments in areas like public education that were neglected by his predecessor, Republican Chris Christie.
Sweeney worried wealthy will leave
But Murphy’s proposal has run into strong opposition in the Legislature even though both houses are controlled by fellow Democrats. Among the most forceful critic has been Senate Steve Sweeney (D-Gloucester), who in the past has advocated for the same tax increase. But this year, Sweeney is citing other elements of the federal-tax overhaul, namely the cap on a longstanding write-off for state and local taxes known as SALT as a reason to be more cautious. High earners will now have more to lose by living full-time in New Jersey compared to other states where taxes aren’t as high, and where they may already have a vacation home or condo.
“When the millionaires move out, the responsibility gets spread amongst the middle class, and they’re the ones that can’t move,” Sweeney told NJ Spotlight in a recent interview.
Similar concerns have been raised by the New Jersey Business & Industry, which is worried about the impact a higher income-tax rate could have on small-business owners who file their tax returns as what are known as S corporations. While the number of businesses in that category with incomes over $1 million has been rising, there’s been a bigger increase in neighboring states like New York and Pennsylvania, according to statistics released recently by NJBIA.
The group has also tracked a loss of a combined $25 billion in adjusted gross income from New Jersey to other states between 2004 and 2016.
“We should be wary of our tax policies making New Jersey more dependent on the highest-income earners who are being given more reasons to consider leaving the state,” said NJBIA president and chief executive Michele Siekerka.
But critics of the Sweeney and Siekerka arguments say those who are leaving New Jersey aren’t doing so just to avoid higher taxes, because New York, California and Massachusetts — which are also high-tax states, are among the top 10 landing spots for former New Jersey residents. They also note that the $25 billion figure cited by NJBIA translates, on a year-to-year basis, to just a small fraction of the state’s overall gross-domestic product, which is nearly $600 billion.
Morris Pearl, the chairman of the board for the Patriotic Millionaires, dismissed the outmigration concerns yesterday, suggesting the prevailing issue for New Jersey is to address the major financial problems that are holding back more investment in things like education and mass transit.
“We have a solution. Tax us,” Pearl said.