YTD revenue (3%) is less than half Treasurer’s projection (7.5%)
Without one-time amnesty program, growth would be 1.3%
Soft income tax revenue consistent with independent out-migration data
New Jersey, along with other high tax states, faces stark budgeting decisions ahead
Garden State Initiative (GSI) analysis of January tax collections reported by the state’s Treasurer is further confirmation of the increasing unpopularity of New Jersey to both families and businesses. Results are well below projections from the Treasurer’s office, with organic year-to-date (YTD) revenue growth of 1.3%, significantly less than the Treasurer’s annual growth plan of 7.5%. When collections from a one-time amnesty program are included, revenue only increased by 3.0%. Of note, Gross Income Tax (GIT) again fell by 6.0% year over year, on the heels of a stunning 35.2% decline in December 2018.
“An avalanche of data has emerged that high tax states are experiencing a significant out-migration of high-income taxpayers,” said Garden State Initiative president Regina M. Egea. “The argument that out-migration from high-tax northern states is a result of weather falls flat in the face of data indicating that California, the high tax capital of the West Coast, is facing similar outmigration threats.“
For New Jersey, this is not a new phenomenon.
An analysis of IRS data by NJ Spotlight revealed the extent to which New Jersey was losing its tax base well before the recent Federal Tax Reform - between 2015 and 2016, New Jersey lost a net of nearly 27,000 households in that time, representing about 47,000 individuals. These households had an adjusted gross income of $3.5 billion, or about $131,000 apiece, well above the average income in our state. An analysis by research firm WealthX revealed that the Northern New Jersey-New York City population center last year lost more than 5,700 of its high-net-worth individuals with liquid assets of $1 million to $30 million.
A similar decline has also been experienced in neighboring New York, where Governor Andrew Cuomo announced a $2.3 billion deficit just last week. In a moment of candor during a public radio interview, Gov. Cuomo warned against additional tax tiers on the wealthy, saying New York already imposes the second-highest taxes on millionaires in the nation:
“This is the flip side. Tax the rich, tax the rich, tax the rich. The rich leave, and now what do you do?”
High-tax state politicians have reacted to budget shortfalls with a disingenuous argument, amplified by the media, that the $10,000 cap on SALT deductions is an attack on the middle class. Fact Check: It’s not.
A SALT repeal would overwhelmingly help the rich. A study by the non-partisan Institute for Taxation and Economic Policy (ITEP), based on data provided by the State of New Jersey in its lawsuit against the federal government, found that were the SALT deduction cap repealed “60 percent of the tax benefits – almost $1.9 billion – would go the richest 1.5 percent of state residents, those who make more than $500,000.” This study was validated by research from the Tax Policy Center, whose directorserved as the Assistant Treasury Secretary for Tax Policy in the Obama Administration, concluding that, “More than 96 percent of the benefit (of a repeal) would go to taxpayers in the top fifth of income — those with income of more than $153,000.”
Ironically, the effort to repeal the SALT cap has laid bare the insincerity of those who desperately desire the status quo and lack the courage to face up to the competitive market in which they now exist.
In NJ’s case, only 10% of taxpayers, not the broad-based middle class, are expected to see a net tax increase for 2018. Inconveniently however, that impacted 10% are overwhelmingly the same individuals who generate over 40% of New Jersey’s Income tax collections. More fiscally responsible states understand exactly what appeals to that 10% and, once they have relocated, it will be nearly impossible for New Jersey to lure them back.
For New Jersey to see a turnaround in state revenues, reducing our SALT consumption (i.e. State and Local Taxes) will improve NJ’s competitiveness to retain and attract jobs from businesses, and improve the affordability for our families and retirees. Doubling down on more taxes and one-time revenue mechanisms, only soothes the political incumbents and makes the inescapable fiscal changes more illusive in a very uncertain future.
As Governor Phil Murphy prepares for his March 5th budget presentation to the legislature, by frankly acknowledging these trends and showing clear-eyed leadership, he can start us down the very challenging road of living on a low SALT diet.