This op-ed appeared in the December 15, 2017 edition of the Asbury Park Press.
As Congressional Republicans’ disastrous tax plan inches closer to reality, New Jersey’s legislative leaders are getting cold feet about the Garden State’s own tax plans that would boost working families, clean up the tax code and allow policymakers to invest in the assets critical to the state’s future. But the GOP tax plan is no reason for lawmakers to shelve these plans – it actually gives them more reason than ever to move forward.
In particular, these policymakers are suggesting that New Jersey might need to press “pause” on long-held efforts to make New Jersey’s income tax fairer by asking the wealthiest residents to pay a little more so our state can build a brighter and stronger economic future. The reason: Fears about a “double whammy” if the Republicans’ federal tax proposal raises taxes by eliminating state and local tax deductions used heavily by New Jerseyans. Those fears, however, are unfounded.
In fact, the Republican tax proposals in D.C. all favor the wealthy – even if these deductions disappear. Once the bill passed by the Senate is fully phased in, for example, it’s New Jersey families in the bottom 60 percent – those earning under $111,000 a year – who will, on average, pay more in net taxes – not the wealthy, according to the Institute on Taxation and Economic Policy. In fact, the top 1 percent of Garden State households – those with annual incomes over $1.4 million – would get an average annual $8,350 tax cut. This narrow slice of wealthy New Jerseyans would reap about two-thirds of the tax cut coming to the state, leaving just one third to divvy up between the rest of us.
The bottom line: New Jersey’s wealthy families are being rewarded by the GOP tax plan – not punished. And a big reason is the enormous and permanent corporate tax cut that is the centerpiece of the proposed changes.
That’s because slashing the top corporate tax rate by nearly half will primarily benefit owners of corporate stocks, according to Congress’ own Joint Committee on Taxation. In fact, despite President Trump’s insistence that average working families will get a “$4,000 pay raise” from this tax plan, just 25 percent of the long-term benefit of a corporate tax cut will go to workers.
And of that already small share, an even smaller piece will go to middle-class or low-income workers, since fewer than half of all Americans own any stock, and overall shareholder wealth is – like most of the rest of the country’s wealth – extremely concentrated at the top (the top 10 percent of Americans own about 80 percent of the value of the total stock market, according to leading economist Ed Wolff).
The bulk of the benefit from the corporate rate cut – three-quarters of it, in fact, – will go to shareholders –and 35 percent of that will flow to foreign investors. In the end, foreign investors will actually see more benefit from this corporate rate cut than working Americans.
Back at home, New Jersey’s own tax code is already upside down, with the lowest-income families in the state paying the highest share of their average annual income to state and local taxes, and the top 1 percent paying the smallest. And recent policy changes have largely made this even worse while making it more difficult for the Garden State to meet the pressing needs of most families by investing in higher education and public transit, or reducing property taxes. New Jersey’s wealthiest families have gotten over $5 billion in tax breaks since 2010 thanks to the expiration of the recession-era income tax surcharge, and a few thousand of the state’s richest heirs are in line to receive a tax cut worth about $500 million a year starting in 2018 thanks to the elimination of the state estate tax.
This is not the time to further delay plans to make the state’s income tax fairer. In fact, New Jersey’s leaders ought to not only move forward with these long-held plans – they should also explore how to recoup at least some of the federal tax cut dollars that will flow to New Jersey’s wealthiest families and largest, most profitable corporations.
This idea goes beyond basic arguments of fairness, because Congressional leaders’ plan consists of two parts: first cut taxes, then cut public services and programs like health care, food assistance, education and housing. The more money New Jersey is able to recoup from the beneficiaries of this disastrous tax plan, the more we’ll be able to guard against the deep and devastating cuts that are sure to threaten the state’s working families down the line while raising costs for state and local governments.
