This op-ed appeared in the October 13, 2017 edition of the Star-Ledger, the Times of Trenton and the South Jersey Times.
With taxes taking center stage in this year’s race for governor, it’s important to take a few steps back and think about the role that taxes play in building a strong state and future. You see, taxes aren’t an end of their own – they are, in fact, a means to an end: shared investments in our shared priorities.
And make no mistake: today New Jersey simply does not have the resources to ensure that the state is meeting the needs of all its residents while laying the groundwork for a thriving economy.
This is not an accident. Decades of anti-tax rhetoric from lobbyists for the wealthy and well-connected have led New Jersey policymakers to cut taxes over and over again – mostly for the state’s most well-heeled families, large corporations and wealthy heirs – all in the name of making the economy “competitive.” But over those same decades, our economy has stagnated, in large part due to the state’s inability to maintain its core economic assets (take NJ Transit, for instance) and its accelerating creep toward insolvency.
And these choices have made New Jersey’s tax code less fair by shifting the overall tax burden to middle-class, working-class and low-income families.
In 2018, New Jersey’s leaders must begin making better choices. Here’s how they can start fixing our broken tax code:
Make the income tax fairer and more effective
In late 2009, the lame duck legislature allowed New Jersey’s temporary income tax surcharge on the state’s wealthiest households to expire. Since then, the governor has vetoed numerous attempts by the legislature to make the Garden State’s income tax more equitable.
The result: the state has subsequently forfeited up to $7 billion in revenue, further enriching the state’s most well-off while cutting property tax relief for middle-class homeowners, increasing public transit fares and raising tuitions at the state’s public colleges to unaffordable levels.
Other states have not made these mistakes.
In fact, states like California, Minnesota, Maine and New York have enacted or extended substantial income tax increases on their wealthiest households, generating tens of billions of dollars to pay for schools, health care and more – and helping to foster strong economic growth.
New Jersey’s policymakers should add four new brackets to the state income tax code. This change would raise over $1 billion a year to invest in schools, property tax relief or other targeted investments, while only raising taxes for the wealthiest 5 percent of New Jersey families.
Restore fair and adequate taxation of inherited wealth
Last year, New Jersey’s political leaders delivered a huge gift to the heirs of the state’s wealthiest families – and a blow to everyone else – by eliminating the state’s estate tax. This change gives a few thousand wealthy heirs a huge tax break, while draining the state of over $500 million a year in lost revenue – dollars vitally needed to support investments with widespread benefits, like infrastructure and higher education.
Policymakers should bring the estate tax back – but with a higher threshold than before. At $1 million or even $2 million, the tax would still raise a substantial amount of revenue while affecting even fewer – and even wealthier – New Jerseyans.
Close corporate tax loopholes
New Jersey currently offers a tax loophole to large multistate corporations – one that hurts New Jersey-based businesses and costs the state money. Through this loophole, large multistate corporations can – on paper – shift profits they make in New Jersey to other states that have lower tax rates or no corporate taxation at all. Corporations often do this by creating “subsidiaries” that exist only for tax purposes.
Other states – 25, to be exact – have combated this charade by adopting a practice called “combined reporting.” And New Jersey should join them. Limiting the ability of profitable multistate corporations to use accounting tricks to dodge state taxes would help level the playing field for the state’s small and local businesses – and raise up to an additional $290 million a year to help the state pay its bills and make key investments.
Roll back the largely invisible 2016 sales tax cut
The tiny, undetectable sales tax cut approved by lawmakers last year will help the wealthiest New Jerseyans the most, save the average Garden State family less than $2 a week but do enormous, lasting damage to the state’s finances with an annual price tag of more than $600 million. This gimmicky tax policy should be reversed.
