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State Tax-revenue Growth In NJ Lags Well Behind Most Other States

Independent analysis shows tax collections in Garden State still fall shy of pre-Great Recession levels, while they have rebounded elsewhere by an average of 13.4 percent

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A new, independent analysis of state tax-collection figures puts New Jersey among a handful of states with budgets that have still not made up all of the ground lost to the Great Recession, while in the rest of the country revenues have surged well beyond pre-downturn levels.

The 50-state revenue analysis by The Pew Charitable Trusts listed New Jersey with eight other states where inflation-adjusted tax collections remained behind pre-recession peaks as of last fall.

The remaining gap was slim for New Jersey — where revenues after adjusting for changes in inflation, were just 1.4 percent below the pre-recession high measured in 2007, according to Pew. But New Jersey and the other lagging states remained well outside the national trend, which showed overall inflation-adjusted revenue collections for U.S. states rebounding on average by 13.4 percent as of last fall.

Pew’s fiscal experts warned that tax-policy changes that were enacted in many states in the wake of the recession, including in New Jersey, have likely influenced the data, as have new federal tax rules and other economic conditions. But they also said there could be future implications for the states that have fallen behind.

“As states regain fiscal ground lost in the recession, policymakers face pressure to catch up on investments and spending postponed because of the downturn,” the analysis said. “That may be more difficult in states where tax revenue remains below its previous peak.”

Intra-party budget battle looms

The new figures come out at a critical time for Gov. Phil Murphy and lawmakers as they are locked, once again, in a debate over tax policy in the run-up to the June 30 deadline for adoption of a new state budget. Murphy, a Democrat, is pushing to expand the so-called millionaire’s tax, arguing the state needs to bring in more revenue to cover all of its expenses. But legislative leaders from his own party have thus far resisted, saying such a change could make the state more vulnerable to the next big recession.

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At their lowest point, in the second quarter of 2010, state revenues in New Jersey had dropped by more than 18 percent compared to before the downturn, according to the Pew data. And it was only toward the end of 2014 when tax collections were again within 10 percent of the state’s pre-recession peak.

State tax collections improved to just 3.1 percent below the pre-recession peak at the beginning of last year, according to Pew. They then moved to 1.4 percent by the third quarter of 2018.

Still, the Pew analysis showed that, after adjusting for inflation, the purchasing power for every state revenue dollar was the equivalent of 1.4 cents weaker in New Jersey last year compared to 2007, even as the national average showed the purchasing power was 13.4 cents stronger among the states as a whole after adjusting for inflation.

New Jersey’s struggle to fully recover has come even as its neighbors have fared much better. In New York, inflation-adjusted tax collections were up by 18.2 percent as of last fall, according to Pew. In Connecticut, they exceeded the pre-recession high by 17.6 percent. Delaware, at 11.1 percent, and Pennsylvania, at 6.1 percent, were also in the black.

Implications of changes in tax policy

Justin Theal, a Pew fiscal expert who authored the report, said in an interview the Great Recession took an especially deep toll on the Garden State’s income-tax collections. He also said, even though New Jersey has still not hit its pre-recession peak, its recovery has mirrored the steady improvement seen in the national trend.

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New Jersey was also among the states that made tax-policy changes in the wake of the recession that have likely influenced the revenue stream. In fact, tax cuts were a priority during the eight-year tenure of Republican Gov. Chris Christie, who took office in early 2010 and persuaded Democratic legislative leaders to enact reductions of the general sales tax and business taxes, and a complete phase-out of the estate tax. At the same time, though, Christie also authorized a 23-cent hike of the state gas tax before leaving office.

The Pew data suggest the tax cuts have yet to deliver the type of widespread revenue growth that many advocates claimed they would generate. But for those who are now questioning Murphy’s proposed lowering of the state’s top-end income-tax rate bracket from $5 million to $1 million, the figures could provide a new argument against linking spending too closely to the income tax, which is already the state’s largest single source of revenue.

Meanwhile, it’s possible that New Jersey tax collections may hit the state’s pre-recession peak by the time Pew’s next analysis is released. State Treasury officials have been reporting only modest growth in revenues during the current fiscal year, which began in July 2018. But they are projecting a strong April as income-tax and corporate-tax collections will help push overall year-over-year growth to near 8 percent by the time FY2019 comes to a close at the end of June.

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