Tax Increases Impact Competitiveness
This year’s budget was solely about which taxes to raise. NJBIA opposed all the tax increases, and while they were scaled back from the original proposals, the increases are going to have a big impact on New Jersey. The state now has a new 10.75 percent tax on personal income over $5 million and an 11.5 percent tax rate on corporate income over $1 million.
Make no mistake, our tax climate just got worse. These tax increases will hurt New Jersey’s economy and will make it hard for businesses to compete with those in other states.
During the budget debate, NJBIA produced research to depict New Jersey’s business climate prior to any tax increases.
$25 Billion in AGI Lost: NJBIA’s research shows New Jersey now has a net loss of nearly $25 billion in Adjusted Gross Income (AGI) over 12 years, driven by taxpayers moving out of state and taking their income with them. Since tax year 2004-2005, New Jersey has gained $66.5 billion in AGI but lost $91.4 billion. Between 2015-2016, New Jersey experienced a net loss in potential AGI of $3.5 billion, according to the latest IRS data.
Second Highest CBT Rate: Prior to this year’s tax increase, New Jersey’s corporate business tax (CBT) rate (9 percent) was the sixth highest in the US. Now, New Jersey has replaced Pennsylvania with the second highest tax in the nation at 11.5 percent on corporations that make more than $1 million. Meanwhile, New York (6.5 percent) and Massachusetts (8 percent) have decreased their corporate taxes and currently have the most competitive rates in the region. Simply put, the increased CBT makes New Jersey even less competitive regionally and nationally.
Of the 2,373 New Jersey corporations that paid corporate taxes and reported earning more than $1 million in net allocated income in 2015, 340 corporations reported earnings of more than $10 million and account for nearly $15 billion of the total income. In other words, 14 percent of companies accounted for nearly 72 percent of total net allocated income for all companies earning $1 million or more in 2015.
Millionaires Tax: An NJBIA analysis also found that while the number of individual income returns for New Jersey businesses filing $1 million or more grew, it was at a slower rate than our regional competitors between 2000 and 2015. During the same time span, New Jersey’s growth in total AGI for businesses filing $1 million or more ranked fifth out of seven amongst regional states.
Prior to the passage of these new tax increases, New Jersey was already lagging behind other states within the region. Now, due to the tax increases recently passed, New Jersey has declined even further in affordability and competitiveness.
New Jersey has a spending problem and without comprehensive reform, New Jersey’s business climate and regional competitiveness is on track for continued decline.