Tax increases proposed by New Jersey Gov. Phil Murphy to combat a mounting structural deficit would harm the state’s general fund over the long-term by prompting more companies and residents to exit the state, a business advocacy group warns.
The New Jersey Business and Industry Association released an analysis Wednesday saying Internal Revenue Service data showed that the state lost a potential $24.9 billion in adjusted gross income revenue from 2004 to 2016 from taxpayers moving. The Garden State expected a net loss in potential AGI income of $3.5 billion alone for the 2015/16 tax year, according to the NJBIA.
“This is critical income that has been lost to New Jersey’s general fund for more than a decade,” NJBIA president and CEO Michele Siekerka said in a statement. “The economic impact that this loss has on the state’s economy is irrefutable and it will worsen if taxes are increased even more.”
The NJBIA report was released as the state faces a deadline to finalize a budget for the 2019 fiscal year that begins July 1. Murphy’s $37.4 billion budget proposal hinges on $1.56 billion of new tax revenues including raising taxes on individuals with $1 million or more in annual income from 8.97% to 10.75%. Another proposal would increase the corporate business tax on companies netting $1 million or more to 12% from 9%, which according to NJBIA would tie New Jersey tied with Iowa for the highest business tax rate in the U.S.
“While most states have either reduced or maintained their corporate tax rates, New Jersey is poised to go in the wrong direction,” Siekerka said. “A CBT surcharge would only incentivize our larger corporations to expand their operations elsewhere.”
The NJBIA analysis determined using 2015 data that 2,373 New Jersey companies would have been impacted by the proposed CBT surcharge. Siekerka noted that regional competitors New York and Massachusetts have decreased their CBT to 6.5% and 8%, respectively, which have boosted their competitiveness.
Murphy’s proposed tax increases have faced political resistance from members of his own Democratic party that control the legislature. New Jersey Treasurer Elizabeth Muoio stated before the Assembly Budget committee on May 22 that with general fund revenues growing far slower than anticipated, the state is on target for a $2.4 billion budget shortfall for fiscal 2019. She said corporate business tax receipts were down 28% at the end of April compared to a year ago.
Structurally imbalanced budgets and a rising pension burden triggered 11 rating downgrades under former Gov. Chris Christie with New Jersey general obligation bonds now rated the second lowest among U.S. states. New Jersey is rated A3 by Moody’s Investors Service, A-minus by S&P Global Ratings and A by Fitch Ratings and Kroll Bond Rating Agency.