The following op-ed appeared on June 17, 2018 on NJ.com and the print edition of the Newark Star-Ledger. It was later featured in the print edition of several Advance Publications newspapers across New Jersey.
By Regina M. Egea
Last month Garden State Initiative hosted an Economic Policy Forum that was a gathering of thought leaders and an opportunity for an exchange of ideas from across the political spectrum in government, academia and business. A common theme was a need to put partisanship aside and produce solutions.
Included was the release of our report "New Jersey's Business Tax Competitiveness: Modeling the Prospects for Growth" based upon research conducted by Ernst & Young. The report sets the stage for discussion of how New Jersey's business climate, as compared to regional and national competitors, impacts our ability to compete for and retain jobs.
During the forum, the common reaction was unease.
Andrew Phillips, a principal at Ernst & Young, concluded that "the broad takeaway from our analysis is that -- for manufacturers in particular -- New Jersey does not have a particularly competitive business tax climate." He later added that the improving climate elsewhere further exacerbates our situation.
James Freeman, of the Wall Street Journal editorial page relayed a story from a money manager, who said: "My clients are fleeing New Jersey, like it's on fire."
Tom Byrne, of Byrne Asset Management, provided a commentary on the millionaire's tax that is just as applicable to corporate taxes, "...the frog in boiling water. We don't know until it's too late."
Those quotes give a clear indication that New Jersey is rapidly reaching a tipping-point when it comes to our ability to retain and lure job creators to our state.
Recent news reports indicate that state Senate President Steve Sweeney is again proposing a 3 percent increase on corporations earning more than $1 million in annual net income to raise nearly $700 million in revenue.
New Jersey does not have to wait until it's "too late" to see the results of short-sighted policies like this proposal.
Our analysis already shows what the expected impact of raising corporate business tax rate will be...an uncompetitive environment for the job creators who provide good paying jobs to New Jersey's workforce.
New Jersey's current corporate business tax, known more generically as CIT (corporate income tax), is higher than every state in the six-state sample except Pennsylvania.
Any CIT surcharge under consideration in our Legislature, if imposed, would make New Jersey even less competitive than those states it is already lagging behind, such as Ohio and North Carolina, and reduce any current advantage it has over states like Connecticut and Pennsylvania.
Current law shows that while New Jersey is presently competitive with nearby states such as Pennsylvania (which has an almost 10 percent corporate rate) and Connecticut, it is far outpaced by Ohio and North Carolina.
The figures in the linked report model the results of a 12 percent rate i.e. including a 3 percent surcharge. New Jersey becomes much less attractive for manufacturing firms.
Increasing the top business tax rate by 33 percent would more firmly establish it as more like the non-competitive states: New York, Connecticut and Pennsylvania. Today's 9 percent rate makes New Jersey generally the most competitive among those three non-competitive states.
While that reputation is not ideal, it is certainly preferable to being a definitively non-competitive state. But that would be its status were the CIT 3 percent surcharge to go through, making New Jersey a national leader for all the wrong reasons.
We will win the race to the bottom and be tied with Iowa for the highest tax on businesses in the nation.
While owning the embarrassing title of business tax leader we would also be missing an extraordinary opportunity. A key component of the recent federal tax reform was to reduce the federal corporate tax to a new rate of 21 percent.
Many companies have taken this opportunity to invest in their businesses and expand their operations. Several states, sensing opportunity, moved to lure those investments by reducing their own corporate and income taxes.
Under our current corporate tax rates, New Jersey is already a challenging environment for any employer to grow new jobs.
Regina M. Egea is president of the Garden State Initiative, a conservative think tank that promotes new investment, innovation and economic growth.