New Jersey’s Tax Gift to Florida
Call it the consummate New Jersey compromise. Governor Phil Murphy and State Senate leader Steve Sweeney have been fighting over whether to raise tax rates on individuals or businesses, and over the weekend they decided to raise taxes on both.
Messrs. Murphy and Sweeney agreed to raise the state’s income tax on residents making more than $5 million to 10.75% from 8.97% and the corporate rate on companies with more than $1 million in income to 11.5% from 9%.
This will give New Jersey the fourth highest marginal income tax rate on individuals and the second highest corporate rate after Iowa. The corporate tax increase will supposedly last two years and then phase out over the next two years, but that’s what politicians always say.
The two Democrats claim this will do no harm because about 0.04% of New Jersey taxpayers will get smacked. But those taxpayers account for 12.5% of state income-tax revenue and their investment income is highly mobile. The state treasurer said in 2016 that a mere 100 filers pay more than 5.5% of all state receipts. Billionaire David Tepper escaped from New Jersey for Florida in 2015, and other hedge fund managers could follow. Between 2012 and 2016 a net $11.9 billion of income left New Jersey, according to the IRS.
The flight risk will increase with the new limit of $10,000 on deducting state and local taxes on federal tax returns. This is why Mr. Sweeney wanted to avoid raising individual tax rates, but Mr. Murphy insisted on it. The new Governor is another progressive who became rich working for Goldman Sachs but seems offended that someone else might also get rich.
About two-thirds of New Jersey’s $3.5 billion income outflow last year went to Florida, which doesn’t have an income tax. Meantime, the state has been bribing corporations with billions in tax credits to stay put. This year the state expects to spend $545 million on corporate welfare, and the cost could double by 2020—thus consuming the $440 million that the new tax increases are projected to raise.
While the new taxes will finance more spending, the state still isn’t sufficiently funding pensions. Pension and health costs are projected to double over five years to $10.7 billion and consume a quarter of the state budget. The fair question is why any rational person or business that can move would stay in New Jersey.