The breathless headlines that make for clickable stories and profitable media outlets don’t always make for an accurate understanding of an issue. Case in point: a recent wave of stories in outlets across the country about the effect that David Tepper’s move to Florida from New Jersey will have on our state’s budget.
Tepper, who was once New Jersey’s wealthiest man, has left for Florida, saying that “family considerations” – not taxes – were the main factor. Still, the modest but important impact that Tepper’s move will have on New Jersey’s budget is being used by opponents of a common sense tax structure as an example of why the state should move away from taxes being based largely on the ability to pay.
State budgets – and tax structures – are about more than managing risk, though they are about that too. More importantly, state budgets are moral documents that reflect the values of a state by pinpointing priorities and determining who pays how much to make the state a great place to live for everyone. If the choice is between modest volatility and being equitable to everyone, we’ll take a tax structure that’s fair any day of the week.
At last week’s hearing on the proposed state budget, the Office of Legislative Services – in its usual rundown of revenue-forecasting risk – explained how Tepper’s move could affect income tax revenues.
OLS noted that a 1 percent forecasting error for income taxes could swing revenues by $140 million. Despite the widespread reports, it did not say that Tepper’s move would cost New Jersey $140 million. Without knowing how much income tax the hedge fund giant used to pay, it’s tough to put an absolute number on how much he’ll save on income taxes by moving to Florida, which has no income tax. But let’s say, for the sake of argument, that $140 million is the number.
While $140 million is nothing to sneeze at, particularly in New Jersey’s distressed financial climate, some perspective is helpful.
$140 million is less than 1 percent of the anticipated revenues in this year’s current budget. It’s only 18 percent of the state’s estimated surplus, which is one of the smallest in the country (and should be rebuilt to plan for contingencies like this, and other larger ones).
$140 million is also far less than most recent round of business tax cuts, which are costing the state $660 million a year in lost revenue. And it certainly pales in comparison to New Jersey’s recent surge in corporate tax subsidies, which have the state on the hook for nearly $7 billion in lost revenue over the next 10-15 years.
And despite all the doom and gloom, it’s also worth reiterating a crucial point: New Jersey is losing its wealthiest resident, but it is not losing wealthy residents. In fact, the state is a very attractive place for wealthy people to live, work and raise families.
Between 2003 and 2013, the number of New Jersey households with incomes over $500,000 almost doubled, jumping to 53,212 from 28,178, according to the state’s annual comprehensive financial audits. It’s worth noting that this growth occurred during a time that income taxes were raised not once but twice on these wealthy households.
New Jersey also has the third most millionaire households on a per-capita basis in the nation, according to one wealth management firm’s estimates. And the share of these households with over $1 million in “investable assets” has grown to 7.1 percent of all households in 2014 from 6.5 percent in 2006, representing an increase of about 25,000 millionaire households.
So let’s hope that Mr. Tepper enjoys being closer to his family, and all that Florida sunshine. He can do so with a clear conscience, knowing that his move hasn’t wrecked New Jersey’s finances. And those who don’t much care if New Jersey’s tax system is equitable or not should stop using him as the poster boy for their pet cause.
