New Jersey is notorious for levying high taxes, and the state may never be known as a tax haven.
But a plethora of recent policy revisions are easing the tax impact on at least some groups, including seniors, parents and low-wage workers who have all been the focus of the state’s latest affordability initiatives.
For example, within just the past few years, the state has increased funding for several direct property-tax relief programs, widened exclusions for retirement income for seniors and expanded the pool of residents who can qualify for New Jersey’s earned income-tax credit.
And just within the past few months, tax incentives for college savings have been established and thousands of New Jersey parents have also been sent income-tax rebate checks worth as much as $500.
Meanwhile, many of New Jersey’s small-business owners have enjoyed new tax relief after the state came up with a way for them to reclaim a full federal tax break for state and local taxes that was taken away by former President Donald Trump in 2017.
Business groups also pushed hard for a full repeal of New Jersey’s estate tax, which went into effect in two phases, in 2017 and 2018.
Moving the affordability needle
Whether these tax policies and others enacted in recent months and years move the needle enough to make a difference on concerns for New Jersey’s overall affordability remains to be seen.
But Gov. Phil Murphy, a Democrat facing reelection this year, is likely banking that they will.
While signing into law earlier this summer a 2022 fiscal year budget that funded some $500 million in new tax breaks, Murphy said he was “delivering substantial tax relief to working and middle-class families.”
However, for high earners and the state’s most profitable businesses, it’s been a much different story.
New Jersey’s top-end marginal income-tax rate has been increased by Murphy and lawmakers during his first term, hitting anyone making $1 million or more annually with an increase. That was done, in part, to fund the income-tax rebates that were just distributed to thousands of eligible New Jersey parents.
And while some may be quick to dismiss the experiences or complaints of top-earning taxpayers, in New Jersey a large share of the budget is disproportionately covered by the income taxes paid by wealthy residents, including funding for K-12 school aid and property-tax relief.
Meanwhile, a new corporate business-tax surcharge has been established for companies with more than $1 million in taxable net income earned in New Jersey despite protests lodged by business groups.
Businesses fear double dipping
The state’s business groups have also begun raising concerns that, as President Joe Biden considers increasing corporate taxes at the federal level as part of his policy agenda, the resulting combination of the president’s proposed federal rates and New Jersey’s existing surcharge could result in job losses and reduced economic output.
And even as the funding for several state property-tax relief programs has been increased in recent years, at the same time local property-tax bills have risen to an all-time high across New Jersey.
New Jersey has also continued to cap the amount individuals and households can deduct from their state income taxes for their local property-tax bills, even as state officials criticize the federal government for placing a limit on its own deduction for state and local taxes several years ago.
The recent announcement that the state’s per-gallon gas tax is going down by 8.3 cents in October also came with a catch. A deeper analysis of the impact of a 2016 law that overhauled the way New Jersey taxes gasoline reveals that motorists will have been hit with a net per-gallon increase of nearly 30 cents, even after the pending reduction goes into effect in less than a month.
Ciattarelli makes tax reform key issue
Republican gubernatorial candidate Jack Ciattarelli, a former state lawmaker, has seized on the tax issue as a key concern as he attempts to prevent Murphy from winning a second term.
Ciattarelli has proposed a series of tax-policy revisions. He would, among other tax changes, exclude all retirement income from state incomes taxes, further expand property-tax relief for seniors and create a state income-tax deduction for charitable contributions.
“Let’s be honest,” Ciattarelli wrote in a recent opinion piece published by NJ Advance Media. “Phil Murphy has proven that … he doesn’t understand or appreciate the tax burden New Jersey families face.”
In a recent analysis of state-by-state tax policies, the Washington, D.C.-based Tax Foundation faulted New Jersey for maintaining some of the nation’s highest tax rates in a number of categories, including its corporate and personal income-tax rates.
The property-tax rates levied on owner-occupied housing in New Jersey are also the highest in the nation, according to the Tax Foundation, which ranked New Jersey last among all 50 states in its latest state business-tax rankings.
“As workers and businesses shift to a more mobile environment following the pandemic, many states are looking to tax policy improvements in order to stay competitive,” said Janelle Cammenga, a policy analyst with the organization’s Center for State Tax Policy.
“New Jersey needs to be conscious of its tax climate if it wants to attract and retain businesses in this new, more flexible business environment,” she added. “For the largest effect, the state should look to changes that lower rates across the board to benefit all residents and businesses in the state.”
But a closer look at the tax issue also reveals a more complicated picture for New Jersey residents, a picture that changes depending on where someone sits in the broader state economy.
For example, for thousands of New Jersey’s lowest-wage earners, an expansion of the state’s earned income tax credit, or EITC, has both increased the size of their tax break and made more individuals eligible to receive it.
And for senior homeowners, more of them can now qualify for the state’s “senior freeze” property-tax relief reimbursements thanks to the recent lifting of income ceilings that were held flat for years as a cost-saving measure in Trenton.
Just a few months ago, Murphy and lawmakers also announced that the average Homestead property-tax relief benefits provided to thousands of seniors, the disabled and low- and middle-income homeowners would be increased, on average, by $130.
Several other tax-policy changes that were part of the state budget Murphy enacted in late June will help other taxpayers, including an expansion of the amount of retirement income that seniors can at least partially exclude from their state taxes.
And for those who don’t drive at all, New Jersey Transit fares have been held flat for years by the Murphy administration.
Favoring neither rich nor poor
In a wide-ranging assessment of state-by-state tax policies, the Washington, D.C.-based Institute on Tax and Economic Policy has credited New Jersey for maintaining a tax system that doesn’t exacerbate the already wide gap between the rich and everyone else.
By looking closely at the share of income families devote to covering their state and local taxes, the group determined that New Jersey’s lowest-income families pay taxes at lower rates than all other groups of taxpayers.
New Jersey also gets credit from ITEP for maintaining a graduated personal income-tax system that ensures lower earners pay the lowest income-tax rates and for excluding essential items like groceries from the state’s otherwise regressive sales tax. The state’s generous Earned Income Tax Credit also wins points in ITEP’s evaluation as well.
“When people describe a state as being ‘high tax,’ it’s always important to ask ‘high tax for whom?’” said Dylan Grundman O’Neill, a senior state-policy analyst with ITEP.
“In New Jersey’s case, the state’s top income-tax rate is a frequent target, but that rate only affects millionaire households, people in the top 1%,” he said.
“Overall, there is plenty more to be done to improve New Jersey’s taxes, but most of the recent changes have pushed in the right direction: increasing taxes on the richest households, reducing them for low- and middle-income families and investing in economic drivers like education,” he said.