Category: Report

The ‘Exodus’ is More Like a Trickle

Posted on by Sheila Reynertson

To download a PDF of this report, click here.

It’s time to set the record straight about who is moving in and out of New Jersey, why they do and what it means for the state’s wellbeing.

For too long the so-called conventional wisdom – fueled by fear mongering and unsubstantiated claims – has said that raising revenue in New Jersey by calling on the wealthiest to pay their share of taxes for the common good drives people, and their money, away.

First and foremost, there is no significant correlation between state taxes and interstate moves.

Job opportunities and family considerations are most commonly cited as reasons for moving from one state to another. If cost of living is a factor, it is more likely that the quest for lower-priced housing and property taxes drive the decision to move, rather than other state taxes.[1]

Second, proponents of cutting taxes for the wealthy use a misleading reading of Internal Revenue Service data when they contend that if a person moves from one state to another that automatically means the state they leave loses income as a result.[2]

The income level of someone who leaves is not an accurate measure of “income migration,” because in most cases a similar income will be earned by whoever fills that person’s job.

What’s more, even if one accurately uses IRS figures on the number of households moving, the patterns and data – if presented in context – tell a very different story than that peddled by business lobbying groups and others who would deprive New Jersey of resources needed to help communities thrive.[3]

• New Jersey’s population continues to grow, even though more people move out of New Jersey than move in from other states in any given year.

• The top 10 locations favored by former New Jerseyans include four states with taxes comparable to New Jersey: New York, California, Maryland and Massachusetts.

• A substantial majority of households moving out of New Jersey to neighboring states are replaced by households from those states moving into New Jersey.

• Florida is the third most popular destination for people leaving New Jersey, and almost half of those making such a move are 55 and over. The same holds true for retirees from many other northern states, some of which have no income taxes or low income taxes.

None of this would be true if New Jersey were “the incredible shrinking state” some would have us believe – a state being hollowed out because of tax rates.

In fact, New Jersey is home to excellent public schools and colleges; safe, walkable, vibrant communities; high-quality health care; the ocean and the beach; and plentiful mass transit options into New York and Philadelphia. These valuable assets and others are what make New Jersey an attractive place to live, work and raise a family for almost 9 million people.

Of course, as is the case with every state, some choose to leave the Garden State. For many, job opportunities elsewhere prompt the move. For others, it’s time to hang up the snow shovel once and for all and retire to a warmer climate.

And, yes, some may leave New Jersey to escape the level of taxes – particularly its highest-in-the-nation local property taxes. But the claim that New Jersey’s taxes, particularly its personal income or estate taxes, are responsible for harming the state’s economy by driving people away en masse, taking billions of state income with them – is dangerously misleading. For policy to be made on the basis of this misinformation is the real threat to New Jersey’s economic future.

Few People Move Across State Lines, and Even Fewer Do So Because of Taxes

Before examining the details of state-to-state movement patterns, it’s important to note that interstate migration is not as common as one would think. More than two-thirds of Americans reside in the state in which they were born. In fact, only 2 percent of U.S. residents make an out of state move per year, a slim rate that has been falling since 1990.[4]

Of the relatively few Americans who do relocate from one state to another, a very small subset cites taxes as the reason for their moves. Since 1998, the U.S. Census has asked people who move the main reason for relocating. The two most common reasons consistently cited are “new job or job transfer” and “family reasons,” such as a change in marital status. Other common answers include housing, closer commute, retirement and college. In the most recent survey, just 13 percent answered either “other reason” or “other housing reason.” Since the survey does not explicitly offer “lower taxes” as an option, this is likely how people for whom taxes is the major reason for a move may have chosen to answer.[5]

Several rigorous statistical studies of interstate moving patterns confirm that there is no meaningful correlation between state taxes and interstate moves.[6] For example, a new long-term study of top income-earners found that the vast majority of millionaires don’t move to avoid state taxes.[7] Another study specifically looked at the impact of New Jersey’s 2004 enactment of a higher tax rate on incomes of more than $500,000 and concluded that “the effect of the new tax bracket is negligible overall. Even among the top 0.1 percent of income earners, the new tax did not appreciably increase out-migration.”[8]

More importantly, the amount of new revenue gained from the tax change dwarfed the tax payments that would have been made by those few who left. The estimated revenue lost was less than 2 percent of the overall revenue gained. In other words, New Jersey did not lose money by increasing income tax rates on the wealthiest households.

The argument that the elderly, in particular, flee taxes by moving to lower-tax or no-tax states is also not supported by the empirical evidence. The patterns of state-to-state movement among the elderly have remained relatively consistent over time, even as state tax policies toward the elderly changed significantly across states.[9] If older people who leave New Jersey are heading to popular retiree destinations regardless of tax policy, there is no reason to offer them tax breaks in the hopes that they will stay.

Many New Jerseyans Move to High-Cost, High-Tax States

The trend of people moving out of New Jersey is by no means a recent phenomenon. Nor is losing a few thousand households every year unique to New Jersey. In fact, this is part of a decades-long demographic population shift from the Northeast and Midwest to the West and South, as working-age people seek job opportunities and retirees seek warmer climates.[10]

While New Jersey is a state where more people leave for other states than move in from other states, its taxes can’t be the primary reason, judging what which states they most commonly chose. Of the top 10 destination states for departing New Jerseyans between 2003 and 2014, many are, like New Jersey, relatively high-cost and high-tax states. For example, the number one destination state is New York — not exactly a low-tax state.

What’s more, New Jersey actually enjoyed a net gain of more than 84,000 former New Yorkers during that same time. There is clearly more to the story if people are choosing to move into high-tax states like New York or New Jersey rather than into lower-tax or no-tax states.

Also, more than 190,000 households left New Jersey for Pennsylvania between 2003 and 2014. And about 8 in 10 of them were replaced by Pennsylvania households moving to New Jersey. This begs the question: if taxes are such a major factor in making relocation decisions, why has New Jersey seen hundreds of thousands of households move in from both higher-tax New York and lower-tax Pennsylvania?

where-they-move-01-768x881

Naturally, Florida is high on the list of states to which New Jersey residents move, and, again, it is misleading to assume that its tax status is the driving force behind this trend. Florida has always been a popular destination for New Jersey retirees. But this is also true of retirees from several other cold states across New England and the northern half of the Midwest – states like New Hampshire, which has no broad-based income tax or sales tax and other states with very low single-rate income taxes (Pennsylvania, Indiana and Illinois). Florida’s warm weather and lower housing costs – not taxes alone – make it a popular choice for retirees and it is likely New Jersey retirees feel the same.

Another point to consider: Just over a decade ago, Florida and New Jersey imposed the exact same estate tax. At that time, the average net annual movement from New Jersey to Florida was 8,000 households. If the estate tax was chasing retirees from the Garden State to the Sunshine State, wouldn’t that number increase when Florida began phasing out its estate tax in 2002? In fact, the opposite happened. For the past eight years New Jersey-to-Florida movement has shrunk to a net average of 6,000 households per year.

The bottom line with data about people moving to and from New Jersey is that it doesn’t tell you much. And that’s just the point – there isn’t much to tell. The story promoted by those trying to convince policymakers that taxes drive people from New Jersey turns out to be just that – a story.

New Jersey’s Population, Number of Wealthy Residents and Income Are All Growing – Not Shrinking

Proponents of cutting taxes for the wealthy have framed the so-called “exodus” of New Jersey residents and income as a serious crisis that policymakers ignore at the state’s economic peril. They do so, in part, by ignoring the fact that New Jersey’s population and income are actually growing, not shrinking – leaving policymakers and the public to ponder solutions to problems that don’t actually exist.

The claim of business lobbying groups that New Jersey “lost more than 2 million residents” between 2005 and 2014[11] is simply untrue.

In fact, the 2,090,786 people who left the state over that time were replaced by 1,408,718 who moved here from other states and 596,279 who did so from abroad. So if you only look at people who moved, New Jersey – the nation’s most densely populated state – “lost” 85,789 people over the decade. That comes to less than 9,000 a year, less than a tenth of a percent in a state with nearly 9 million residents.

And, that count doesn’t include New Jerseyans who were born here and stayed here; if you also factor in growing families, the state’s population has consistently grown over the same decade, to 8.9 million in 2014 from 8.7 million in 2005.

The Garden State isn’t just growing in population. The state continues to gain millionaires and has a higher share of them than all but three states, according to one wealth management firm’s estimates of net worth and investable assets.[12] New Jersey has 29,371 more households with assets worth more than $1 million than it did in 2006. These families have risen to 7.2 percent of the state’s households in 2015 from 6.5 percent in 2006.

millionaires-growing-01-768x590

Confirmation of the growing number of wealthy households can also be found among New Jersey’s personal income tax filings, which are based solely on incomes, not assets.

Between 2003 and 2013, the number of New Jersey households with annual incomes over $500,000 increased by 89 percent, jumping to 53,212 from 28,178.[13] The share of wealthy households also rose to 1.9 percent of all income tax filers in 2013 from 1.1 percent in 2003.

It’s worth noting that this growth occurred during a time that state income tax rates were raised not once but twice on these wealthy households, and the growth was this healthy despite the temporary lull during the Great Recession.

migration-myth-CAFR-2013-01-1

Lastly, proponents of eliminating New Jersey’s taxes on inherited wealth suggest that many of these same well-off people who grow their wealth here leave once the end of their lives draws near, in order to save their heirs from an estate or inheritance tax bill.

While some older New Jerseyans may indeed leave the state to avoid these taxes, the supposed deleterious effect these moves have on the state’s economy and finances is wildly overstated – because revenue from these taxes is growing, not shrinking. Collections from these taxes have grown by 44 percent in the past 13 years,[14] and the state budget Gov. Christie proposed four months ago for the fiscal year that starts July 1 anticipates even more revenue from these taxes – an all-time high of $848 million.[15] The Office of Legislative Services 2017 estimate is now even higher, at $880 million.[16]

‘Income Migration’ Claims Are Inaccurate

The same group’s contention that New Jersey’s tax rates have created economic damage due to the so-called loss of $18 billion in New Jersey income between 2004 and 2013 is also wrong.

Some context is instructive.

Though 18 billion of anything sounds significant, the shock value diminishes once the income of the state as a whole is taken into account. During these same 10 years, the amount of income reported annually in the state grew by $103 billion, adding up to an impressive $2.5 trillion for the period as a whole. The supposed “loss” of $18 billion is a mere 0.7 percent of the total household income generated in New Jersey from 2004 through 2013.

So it’s barely a sliver when compared to the state’s entire economic pie. But the real number is even less than that because the $18 billion figure ignores what really happens to personal income when someone moves out of the state.

The vast majority of people actually don’t take their income with them to a new state – because they can’t. When people make an interstate move, they usually leave their job to take another, and the income they made in their previous job typically goes to the person who replaces them. That state income essentially stays put, which explains why New Jersey’s overall income reported each year grew significantly at the same time we “lost” that $18 billion.[17]

The same holds true for business owners if they leave the state. The money their business made goes to the new owner of the business if the old owner sold it, or other in-state businesses that pick up the customers of the one that left. If a doctor or a plumber or the owner of a restaurant leaves New Jersey, the patents and clients and customers don’t leave too.

For those moving out of state upon retirement, it is equally misleading to claim that New Jersey’s economy loses income equal to the person’s pre-retirement salary, because their income also would have declined if they had retired in New Jersey.

And in today’s mobile, technological age, some people may leave the state but continue to work or own a business in New Jersey. If so, they continue to contribute to the economy and pay taxes, though perhaps not as much as before their move. To categorize all of their income as “lost” to the economy of the state from which they moved is an exaggeration.

Instead of focusing on misleading claims about tax-motivated movement from New Jersey, policymakers should focus on improving policies that grow the incomes of current and future residents and the state economy at large. Deep cuts to – or outright repeals of – taxes on inherited wealth only leave the state with fewer resources to support colleges and universities, parks, roads, public safety and other foundations of the state’s prosperity. These are the things that make New Jersey a place where businesses want to invest and where people want to live and work.

Cutting taxes out of fear that wealthy people will leave New Jersey – and that they will take piles of money with them – is like a well-aimed shot in the foot. With no credible evidence that taxes dictate where people live – and lots of evidence that they don’t – policymakers should not forfeit a significant amount of revenue that the Garden State cannot afford to lose to forestall the loss of income tax revenue from a small group of people.

Endnotes

[1] The Center on Budget and Policy Priorities, State Taxes Have a Negligible Impact on Americans’ Interstate Moves, May 2014.
[2] Tax Policy Issues, Why People Use IRS Migration Data, March 2016.
[3] For an example of the misuse of this data, see NJBIA’s Outmigration by the Numbers: How Do We Stop the Exodus?
[4] Ibid 1
[5] Ibid 1
[6] Ibid 1
[7] American Sociological Review, Millionaire Migration and Taxation of the Elite: Evidence from Administrative Data, June 2016.
[8] National Tax Journal, Millionaire Migration and State Taxation of Top Incomes: Evidence from a Natural Experiment, June 2011.
[9] National Tax Journal, No Country for Old Men (Or Women): Do State Tax Policies Drive Away the Elderly?, June 2012.
[10] Brookings Institution, Sun Belt Migration Reviving, New Census Data Show, January 2016.
[11] New Jersey Business & Industry Association, Outmigration by the Numbers: How Do We Stop the Exodus?, February 2016.
[12] Phoenix Marketing International, 2015 Market Sizing Update & Millionaires By State Ranking, January 2016 and Ranking of U.S. States By Millionaires Per Capita 2006-2013, January 2014.
[13] NJPP analysis of New Jersey Comprehensive Annual Financial Reports, available at http://www.nj.gov/treasury/omb/publications/archives.shtml
[14] Ibid 13
[15] State of New Jersey, The Governor’s FY2017 Budget Summary, February 2016.
[16] New Jersey Office of Legislative Services, Remarks of Frank Haines, Legislative Budget and Finance Officer to the Senate Budget and Appropriations Committee, May 2016.
[17] The Center on Budget and Policy Priorities, State “Income Migration” Claims Are Deeply Flawed, October 2014.

Earned Sick Leave for All Would Help New Jersey’s Workers & Boost its Economy

Posted on by Brandon McKoy

To download a PDF of this report, click here.

New Jersey would have a stronger economy and healthier people if every working man and woman could take days off when they are sick without forfeiting their pay or, sometimes, their jobs. Today, though, over 1 million New Jerseyans – most of whom work in low-wage jobs – don’t get paid when they have to take off for being sick.[1]

But earned sick days don’t only benefit working people; they help employers too. By investing in their workers, business owners reap the benefits of a more productive workforce and with lower employee turnover that is both expensive and disruptive.

For most New Jerseyans, this isn’t even an issue. About 3 million workers – 7 out of every 10 – have the right to take time off with pay if they are sick. Typically, workers earn an hour of sick time for every 30 hours they work, but many businesses simply provide sick time to their workers without demanding that they earn it by counting work hours. Seventy percent of New Jersey businesses grant the right of sick time already.[2] According to a 2013 poll, 83 percent of New Jersey residents support this common-sense policy.[3]

Claims by the opponents of pending legislation that giving workers earned sick days would hurt the economy don’t hold up. The experiences in numerous cities, states and countries have been just the opposite. Of the 22 most developed nations in the world, only the United States doesn’t require that all working people are entitled to earned sick days. Several cities and states across the country require earned sick days, without any harm to their economies. Often, business owners have come to favor mandatory sick days once they are implemented, as they find the policy helps their workers stay healthy and be more productive. In cities with the longest experience like San Francisco and Seattle, and elsewhere, their economies have improved after earned sick days were mandated, showing that the policy doesn’t hurt jobs and businesses.

Put in perspective, the fight for earned sick days is facing the same knee-jerk resistance that confronted advances in workers’ rights throughout American history. The arguments heard today against earned sick days closely resemble those used against such reforms as the eight-hour work day, the five-day work week and anti-child labor laws – that basic benefits for employees are “bad for business.” These dire warnings have never been borne out. The economy doesn’t suffer and often – particularly in the low-wage industries where most people lacking earned sick days work – employers experience significant savings from reduced turnover and increased productivity that easily outweigh the modest costs.

Bringing Earned Sick Days to All New Jersey Workers

Twelve New Jersey cities have passed their own earned sick days policies: Jersey City, Newark, Irvington, Paterson, Passaic, East Orange, Montclair, Bloomfield, Trenton, Elizabeth, New Brunswick and Plainfield.

esd-map-01

Jersey City was the first to pass such an ordinance that took effect in January of 2014. There, after a full year, many of the companies that changed their policy as a result of the new law have seen at least one, if not more than one, of several benefits (reduced turnover, improved productivity and higher-quality job applicants) – and abuse of the new policy by workers has been essentially absent. Additionally, fewer sick Jersey City employees are coming to work, reducing the risk of illness spreading around the city – an important finding that promotes both public health and a stronger economy.[4]

As more municipalities follow suit, momentum is building to pass a comprehensive state law. A bill passed by the Senate at the end of 2015 would allow all employees to accrue one hour of sick leave for every 30 hours worked. (The bill was reintroduced in the new legislative session and will need to be voted on again.)[5] Workers at businesses with up to nine employees can accrue up to 40 hours (five days) of sick leave at a time and carry it over from year to year; for workers at businesses with ten or more employees, the same rules apply, except they can accrue up to 72 hours (nine days). They could then use this paid leave to receive medical attention and recover from illness; care for an ill family member; recover, or help a family member recover, from domestic and sexual violence; or stay home when their workplace, child’s school or child care facility is closed by public officials (as would happen, for example, in a weather emergency).

All workers would start to accrue time on their first day of work and be eligible to use that time after 90 days on the job. Everyone would carry over unused sick leave from one year to the next as long as they remain below the designated limit.

Increased Productivity & Reduced Turnover Save Businesses Money

As a result of increased productivity and reduced turnover, New Jersey businesses that don’t currently offer earned sick days would experience savings and reduced costs after implementing earned sick days. The entire group of businesses employing the 1.25 million workers without earned sick days[6] would save up to $104.3 million each year, while businesses in the six sectors with the largest number of workers without sick days would save up to $126.4 million a year.

ESD-savings-chart-01

When people come to work while sick, they don’t perform at their peak. This decrease in productivity due to illness, often also called “presenteeism,” has a real and negative effect on businesses. Companies that don’t offer earned sick days lose a significant amount of money per worker per year due to this phenomenon (the amount lost depends on a number of variables including hours worked and average wage).[7] This effect snowballs as workers continue working while ill, and continue to work at less than peak productivity, rather than having the opportunity to use a sick day to get well and return to peak productivity more quickly.

In addition to reduced costs from increased productivity, businesses can save from reduced employee turnover that springs from providing earned sick days. When employers don’t have to hire and train new employees to replace those who are either fired for calling out sick or who voluntarily leave for a job that has earned sick days, they can save a significant amount of money and time. In fact, turnover costs can account for up to 20 percent of annual compensation.[8]

In New Jersey, the businesses that employ the 1.25 million workers who don’t currently have earned sick days could reduce their costs by up to an estimated $1.1 billion annually if they were mandated to provide this benefit.

Looking only at employers in the six private-industry sectors with the most employees without earned sick days,[9] which make up 64 percent of workers who lack this benefit, the reduced costs would be up to $568.2 million a year. These sectors have large numbers of low- and middle-income workers, so earned sick days would have an outsized impact for these workers and their families.

top-ESD-jobsv2-01

Of course, these businesses would see a cost to implementing earned sick days, as they would with any other common-sense benefit for their workers. But in all, the savings from increased productivity and reduced turnover alone is likely to outweigh the costs. The entire group of businesses employing the 1.25 million workers without earned sick days would have a net savings of up to to $104.3 million a year, while the employers in the six specific sectors outlined above would have an annual net savings of up to $126.4 million. (The smaller group would see larger savings because it has lower costs of implementation due to lower average wages, and stands to save more money from increased productivity.)

These savings are just the immediate savings to businesses only. The state as a whole would experience additional and significant savings from reduced contagion, fewer hospital visits and lower use of emergency services (estimated at $83.17 per worker by a study that looked just at Newark[10]), plus possible boosts in job growth and economic activity as experienced by San Francisco[11] and Seattle.[12] These are important as they demonstrate the positive impact of earned sick days policies on employers, employees, and in the broader economy and population.

Benefits Go Beyond Dollars and Cents

Earned sick days do more than boost a worker’s economic security, reduce turnover and increase productivity. They greatly improve a locale’s public health, particularly during winter months and flu season. The bottom line: when sick workers stay home, the risk of contagion drops significantly.[13]

During the H1N1 flu pandemic of 2009-10, for example, employees who came to work sick across the nation caused the infection of an additional 7 million people, which led to 1,500 deaths, according to the U.S. Centers for Disease Control and Prevention (CDC).[14]

Having the ability to take a day off when sick is particularly important for workers in food-related occupations. These are jobs where people who are sick while working have a higher chance of spreading disease to their fellow workers and the general public, yet in New Jersey about 72 percent of workers in food preparation and serving related occupations – approximately 205,070 people – are not granted earned sick days.[15] Nationwide, more than half of all food workers go to work sick because they have to.[16]

People who come to work sick also get injured more often, particularly in high-risk occupations like manufacturing, construction, healthcare and agriculture.[17] The American Public Health Association[18] and the Occupational Safety and Health Administration[19] advise employers to develop sick leave policies that strengthen their business by preventing sick employees from spreading disease.

Being able to take earned sick days is also very important for working parents. When they aren’t allowed to take earned sick days, parents face the difficult decision of caring for themselves and their loved ones or showing up for work – a choice which could extend the duration and increase the severity of an illness. With 80 percent of mothers primarily responsible for arranging and accompanying their children to doctor’s appointments,[20] its clear that earned sick leave is vital for working mothers.

And single parents with children may particularly benefit, as they often have fewer resources and are more likely to be sole caregivers for their children. Of the approximately 560,000 New Jersey women who lack access to earned sick days, more than one in three (about 214,000) are unmarried with children under the age of 18.[21] And about 10 percent of the New Jersey men who lack access to earned sick leave are single parents.[22]

The U.S. Lags on Paid Leave; New Jersey Can Start to Catch Up

Despite paid sick time’s obvious and widespread benefits, the United States doesn’t require employers to provide it.[23]

Legislation introduced in Congress and supported by President Obama would bring earned sick days to the 43 million Americans who aren’t now entitled to them,[24] but prospects for passage are not strong.

The federal government’s unwillingness or inability to institute such an important policy has stimulated states and cities across the country to adopt their own measures. States that have passed earned sick days legislation are Connecticut, Massachusetts, Vermont and California; cities within California that have their own earned sick days legislation include Oakland and San Francisco. In addition to the 12 in New Jersey, other cities that require earned sick days are Washington, D.C., New York City, Philadelphia, Seattle, Portland, and Eugene.[25]

New Jersey requiring earned sick time for all working men and women would be an important step towards treating all workers with the dignity and respect they deserve. When workers and their families do better, the state and its economy do better.

Methodology

To estimate the costs and savings that would result from extending earned sick days to the occupational sectors with large numbers of low- and middle-income workers, the following assumptions were made:

  • Estimated 800,751 workers in the most affected occupations (see Table 1)
  • Average of 3 sick days are taken annually per worker[26]
  • Average hourly wage of $17.94[27]
  • Average of 7.83 hours worked per day[28]
  • Presenteeism – employees working at less than peak productivity due to illness – resulting in $152.67 annually of lost productivity per worker[29]
  • Turnover costs are 20% of annual compensation per worker[30]
  • Turnover rate of 8.16%[31]
  • Reduction in voluntary turnover up to five percentage points[32]
  • Wages as 65.4% of total compensation[33]
  • Payroll taxes and benefits of 34.6%[34]

In estimating the costs and savings that would result from extending earned sick days to all private sector workers in New Jersey, the following assumptions were made:

  • Estimated 1,253,970 workers
  • Average of 3.5 sick days are taken annually per worker[35]
  • Average hourly wage of $20.93[36]
  • Average of 7.74 hours worked per day[37]
  • Presenteeism – employees working at less than peak productivity due to illness – resulting in $178.41 annually of lost productivity per worker[38]
  • Turnover costs are 20% of annual compensation per worker[39]
  • Turnover rate of 8.16%[40]
  • Reduction in voluntary turnover up to five percentage points[41]
  • Wages as 65.4% of total compensation[42]
  • Payroll taxes and benefits of 34.6%[43]

Endnotes

[1] Institute for Women’s Policy Research, Access to Paid Sick Days in the States, 2010, March 2011.
[2] New Jersey Spotlight, Judge Upholds Municipal Sick-Leave Laws, Clears Way for Proliferation, April 2015.
[3] Center for Women and Work at Rutgers University, It’s Catching: Public Opinion toward Paid Sick Days in New Jersey, October 2013.
[4] The Center for Women and Work at Rutgers University, Earned Sick Days in Jersey City: A Study of Employers and Employees at Year One, April 2015.
[5] New Jersey Legislature, Senate Bill No. 799
[6] This estimation of workers without sick days does not account for workers in cities that have recently passed earned sick days legislation.
[7] NJPP Analysis of: Goetzel, RZ, Long SR, Ozminkowski RJ, Hawkins K, Wang S, Lynch W; Health, Absence, Disability, and Presenteeism Cost Estimates of Certain Physical and Mental Health Conditions Affecting U.S. Employers, April 2004.
[8] Center for American Progress, There Are Significant Business Costs to Replacing Employees, November 2012.
[9] Overall, the employment sectors of Education, Training and Library Occupations and Protective Services Occupations have larger numbers of workers without earned sick days than the Construction and Extraction Occupations sector, but they also have a significant number of workers who are employed by the public sector and are thus subject to different rules and standards. For this analysis, we attempted to select the six industries with the largest number of private-sector workers who do not have earned sick days.
[10] Institute for Women’s Policy Research, Valuing Good Health in Newark: The Costs and Benefits of Earned Sick Time, December 2013. Pg 4.
[11] Institute for Women’s Policy Research, San Francisco Employment Growth Remains Stronger with Paid Sick Days Law Than Surrounding Counties, September 2011.
[12] Main Street Alliance of Washington, Paid Sick Days and the Seattle Economy, September 2013.
[13] National Partnership for Women & Families, Paid Sick Days Lead to Cost Savings for All, April 2013.
[14] US Centers for Disease Control and Prevention, Updated CDC estimates of 2009 H1N1 Influenza Cases, Hospitalizations and Deaths in the United States, May 2011.
[15] NJPP Analysis of: Bureau of Labor Statistics, May 2014 State Occupational Employment and Wage Estimates New Jersey, Occupational Employment Statistics, May 2014.
[16] Center for Research & Public Policy, The Mind of the Food Worker: Behaviors and Perceptions that Impact Safety and Operations, October 2015.
[17] Centers for Disease Control and Prevention, Making the Case for Paid Sick Leave, July 2012.
[18] American Public Health Association, Support for Paid Sick Leave and Family Leave Policies, November 2013.
[19] United States Department of Labor, Occupational Safety & Health Administration, Employer Guidance – Reducing All Workers’ Exposures to Seasonal Flu Virus.
[20] U.S. Census Bureau, 2013 American Community Survey, 1-Year Estimates, Table DP02 – Selected Social Characteristics in the United States, 2014.
[21] NJPP Analysis of: U.S. Census Bureau, 2013 American Community Survey, 1-Year Estimates, Table S2401, 2014.
[22] NJPP Analysis of: U.S. Census Bureau, 2013 American Community Survey, 1-Year Estimates, Table S2401, 2014.
[23] Center for Economic Policy and Research, Contagion Nation: A Comparison of Sick Day Policies in 22 Countries, May 2009.
[24] National Partnership for Women & Families, The Healthy Families Act, February 2015.
[25] National Partnership for Women & Families, Support Paid Sick Days,
[26] U.S. Bureau of Labor Statistics, Paid Sick Leave: Prevalence, Provision, and Usage among Full-Time Workers in Private Industry, February 2012.
[27] Ibid 15
[28] NJPP Analysis of: U.S. Bureau of Labor Statistics, Labor Force Statistics from the Current Population Survey, February 2015.
[29] Ibid 7
[30] Ibid 8
[31] NJPP Analysis of: U.S. Census Bureau, Center for Economic Studies, New Jersey’s Quarterly Workforce Indicators, 2013.
[32] Institute for Women’s Policy Research, Valuing Good Health: An Estimate of Costs and Savings for the Healthy Families Act, April 2005. Average of range presented on Pg 9, Table 6, Cost of turnover.
[33] U.S. Department of Labor, Bureau of Labor Statistics, Employer Costs for Employee Compensation for the Regions – June 2015, September 2015. Data on file at NJPP.
[34] Ibid 33
[35] Ibid 26
[36] Ibid 15
[37] Ibid 28
[38] Ibid 7
[39] Ibid 8
[40] Ibid 31
[41] Ibid 32
[42] Ibid 33
[43] Ibid 33

Raising New Jersey’s Minimum Wage to $15 an Hour Would Boost a Large and Diverse Group of Working Men and Women

Posted on by Jon Whiten

To download a PDF of this report, click here.

Increasing New Jersey’s minimum wage to $15 an hour by 2021 would directly boost the pay of about 1 in 4 Garden State workers, or 975,000 men and women. The wage increase would help a diverse group of workers who currently aren’t paid enough to make ends meet, improving their chances of getting by – and, often, providing for their families – in high-cost New Jersey.[1]

15minimumwageagev2-01

15minimumwagehours-01

15minimumwageparents-01

15minimumwagegender-01

15minimumwagerace-01

15minimumwageeducation-01

15minimumwagefamilyincomes-01

15minimumwageoccupationsv2-01

Endnotes

[1] This Economic Policy Institute analysis of 2015 Current Population Survey Outgoing Rotation Group microdata looks at characteristics of New Jersey workers earning less than the equivalent of $15 an hour in 2021, or less than $13.16 in 2015 dollars. The estimated workforce is calculated from the CPS respondents who were 16 years old or older, employed, but not self-employed, and for whom either a valid hourly wage is reported or one can be imputed from weekly earnings and average weekly hours. Consequently, this estimate represents the identifiable wage-earning workforce, a subset of total state employment.

Nearly All of New Jersey’s Largest Employers Already Subject to ‘Combined Reporting’ in Other States

Posted on by Sheila Reynertson

To download a PDF of this report, click here.

Limiting the ability of profitable multistate corporations to use accounting gimmicks to avoid New Jersey taxes would help level the playing field for the state’s small and local businesses. This important reform, known as “combined reporting,” is so common in other states that nearly all of New Jersey’s largest employers already use it when filing state taxes elsewhere.

combined reporting mapMost large corporations consist of a parent entity and its subsidiaries. Combined reporting treats the parent company and subsidiaries of multistate corporations as one entity for state corporate income tax purposes. Their nationwide profits are added together and the state then taxes the appropriate share of the combined income. With recent enactment in Rhode Island and Connecticut, 25 out of the 45 states that have some form of corporate income taxation, plus the District of Columbia, now mandate combined reporting.

Members of both political parties have introduced legislation[1] that would build upon New Jersey’s 2002 Business Tax Reform Act, which banned deductions for royalties paid to related out-of-state companies and required combined reporting by all casinos and any corporation suspected of abuse by the Division of Taxation. Making combined reporting mandatory for all multistate corporations is a common-sense step that would stop profitable multistate corporations from taking advantage of the tax loopholes that remain in place. And it potentially would raise between $235 and $470 million a year for much-needed investment in schools, roads and other building blocks of a strong economy.[2]

Despite the continued opposition of some business lobbyists, there is no better evidence of the benign economic development impact of combined reporting than the continued willingness of major multistate corporations to maintain operations in combined reporting states. Large corporations continue to willingly locate or expand in states with combined reporting.[3] And for the vast majority of the largest corporations in New Jersey, combined reporting is nothing out of the ordinary and is accepted as another cost of doing business.

New Jersey’s 98 largest non-casino for-profit employers were examined by NJPP to see in what other states they have physical facilities (casinos are already subject to combined reporting in New Jersey). These include the state’s largest financial institutions, pharmaceutical companies and retailers. (See Appendix for full breakdown by employer.)

CR states bar graph-01

• Nearly all of the largest New Jersey employers – 92 out of 98 – maintain facilities in at least one combined reporting state or are a member of a corporate group that has a facility in at least one combined reporting state. (94 percent)

• The vast majority of these corporations maintain facilities in multiple combined reporting states. More than 75 percent – 76 out of 98 – have facilities in five or more combined reporting states and about half – 48 out of 98 – have facilities in 10 or more such states.

• Fifteen of these companies have facilities in all 25 combined reporting states as well as Washington, D.C. (15 percent)

• Of the 10 largest employers, all have facilities in at least one combined reporting state – and half of them have facilities in all 25 combined reporting states as well as Washington, D.C.

• More than one in three of the companies maintain their headquarters in combined reporting states (36 percent). These include Verizon, AT&T, United, Target and Pfizer.

• Three out of four companies – 73 out of 98 – have a facility in California, the state that pioneered combined reporting and is known to enforce it most aggressively. (75 percent)

In other words, it is very clear that adopting comprehensive combined reporting would not lead New Jersey’s largest employers to leave the state or discount New Jersey as a location for future investment.

In fact, expanding combined reporting would nullify a sophisticated real estate scheme used by Walmart and other multistate retailers and banks. Combined reporting would also reduce the competitive disadvantage faced by small businesses operating in New Jersey. As it stands, local businesses are more likely to have to pay taxes on all their profits, because, unlike multistate firms, they have nowhere to shift them. Even unincorporated businesses not subject to corporate income tax may be at a disadvantage without combined reporting because their profits are subject to the state’s personal income tax. Without combined reporting, large multistate corporations end up paying income tax at a lower effective tax rate than small businesses.

Combined reporting not only helps foster a more level playing field for all businesses, it increases the resources that states need to be able to invest in vital services like education, transportation infrastructure and public safety – services that all businesses rely upon and consider when making long-term plans. Failing to mandate combined reporting could harm the state’s economy by allowing its corporate tax base to erode, undermining the public services needed by the private sector.

Some major multistate corporations oppose combined reporting, claiming it leads to difficult and costly tax compliance burdens. These corporations also threaten that combined reporting could lead to job losses if major employers leave the state or reject it for future investments.

This rings hollow, considering the evidence presented here. Most of New Jersey’s largest employers already operate in combined reporting states and, in some cases, have been for decades. As an accounting process, there is little difference between combined reporting and the consolidated reporting that the vast majority of large corporations use when they report their profits to the Internal Revenue Service and stockholders. Multi-entity corporate groups are the only ones affected by combined reporting, and the very small increase in complexity is well justified by the need for New Jersey to stop corporate tax sheltering. Concerns over the possibility of comprehensive combined reporting creating an undue burden on corporations are therefore unfounded.

Appendix: Detailed Breakdown by Employer and Industry

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Finance

Every one of the 16 largest New Jersey companies that specialize in professional financial services operates in at least one combined reporting state. Half of them are located in 15 or more combined reporting states, and half are headquartered in a combined reporting state.

Retail

Retail giants like Walmart, Lowe’s and CVS have a strong presence in New Jersey. With the exception of Wawa, all 27 of the largest retailers in the Garden State operate in at least one combined reporting state (96 percent).

Three in four of these retailers – 20 out of 27 – have operations in at least a dozen combined reporting states, while 11 (41 percent) have facilities in all 25 combined reporting states. Ten have their headquarters in a combined reporting state.

Many of the state’s largest retailers are also headquartered here. Two of them – Toys “R” Us and Bed Bath & Beyond – are in every combined reporting state. Other New Jersey-based retailers already familiar with combined reporting because they operate in at least one combined reporting state include the state’s biggest employer, Wakefern Food (owner of Shop Rite and Price Rite), Quick Chek and King Food Markets.

Pharma/Biotech

All of New Jersey’s largest pharmaceutical and biotechnology companies, like Merck and Bayer, are subject to combined reporting since they all operate in at least three locations that require the tax policy. And seven of the nine (78 percent) have facilities in five or more combined reporting states.

Methodology

This study is modeled on similar studies of Maryland and New Mexico conducted by Michael Mazerov, a Senior Fellow at the Center on Budget and Policy Priorities in Washington, D.C. and one prepared for Connecticut Voices for Children by the Yale Law School Legislative Advocacy Clinic. The methodology used is based on guidelines shared by Mr. Mazerov, but the accuracy of the findings is the sole responsibility of NJPP.

The 98 businesses examined for this report were culled from the New Jersey Business & Industry Association’s annual list of New Jersey’s 100 largest for-profit employers by number of employees.[4]

NJBIA’s 2015 list of largest for-profit employers actually includes 104 businesses. However, we excluded six casino operations from the analysis, because they are already subjected to combined reporting in the Garden State as a result of corporate tax reform passed in 2002.[5]

The two main sources of information used to identify the states in which the companies have facilities were the annual “10-K” reports filed by publicly traded corporations with the Securities & Exchange Commission and the companies’ websites. The 10-K report contains a section called “Properties,” which frequently includes a company’s description of its major facilities. This information was supplemented by an examination of each company’s own website.

Many company websites include a section specifically listing their locations. For those companies that did not have such a page, it was often possible to use the company’s career page for more information. Here, companies often list all their locations to assist prospective employees in their job search. If not, states were included in the analysis only if there were multiple job listings for each state. Job listings for sales jobs were disregarded because the presence of sales personnel in a state does not automatically establish corporate income tax liability for a company.[6]

The data in this analysis should be viewed as a minimum number of combined reporting states in which New Jersey companies and their corporate parents are taxable. States were counted only if written evidence authored by the company itself that it had a facility in a specific combined reporting state was obtained and double-checked. It is quite possible that some companies in this analysis are subject to corporate income tax in other combined reporting states. Finally, it is possible that some of the companies listed in the analysis are not subject to New Jersey corporate income tax – and therefore outside the reach of the state’s adoption of combined reporting – because they are structured as Limited Liability Companies or Subchapter S corporations.

Endnotes

[1] Senators Lesniak, Sarlo and Greenstein have introduced Senate Bill 61, while Assemblyman Dancer has introduced Assembly Bill 1720.
[2] New Jersey Policy Perspective, Closing Corporate Tax Loopholes Would Help New Jersey’s Small Businesses & Provide Resources to Build Economy, June 2015.
[3] For example, see research from the Center on Budget and Policy Priorities (http://www.cbpp.org/research/vastmajority-of-large-maryland-corporations-are-already-subject-to-combined-reportingin?fa=view&id=3317), Connecticut Voices for Children (http://www.ctvoices.org/sites/default/files/bud10combinedreporting.pdf), and the Institute for Wisconsin’s Future (http://wisconsinsfuture.org/wp-content/uploads/2012/08/iwf_combined_report_feb09.pdf)
[4] New Jersey Business and Industry Association’s New Jersey Business magazine, 43rd Annual Top 100 Employers, August 2015.
[5] Public Law 2002, C. 40
[6] Center on Budget and Policy Priorities, Most Large North Carolina Manufacturers Are Already Subject to ‘Combined Reporting’ in Other States, January 2009.

Eliminating New Jersey’s Estate Tax: Like Robin Hood in Reverse

Posted on by Jon Whiten

To download a PDF of this report, click here.

By seeking to eliminate one of New Jersey’s taxes on inherited wealth,[1] Gov. Christie’s latest proposal would deliver the greatest benefit to New Jersey’s most well-off households while seriously threatening resources needed for public colleges, safe communities, health care and other important building blocks of a strong economy.

estate tax basics-01The governor, in his State of the State address, pushed for abolishing New Jersey’s estate tax and to do so in one step this year.[2] This tax is owed by just 4 percent of all estates in New Jersey, and brings in about $300 million a year.[3]

The estate tax is also an important tool at a time when the economy doesn’t work for everyone because so much wealth is increasingly concentrated in so few hands. With the wealthiest 1 percent in New Jersey holding 21 percent of the state’s income – a level of inequality not seen since the 1920s[4] – this tax, which preserves key public investments that stoke economic opportunity for all, is needed more than ever.

Opponents of this important source of revenue for public needs claim a tax on the wealthiest is a hardship for them. Here are some facts to clarify this debate:

• Each year about 70,000 people in New Jersey die. On average, fewer than 3,000 of the estates they leave – just 4 percent – owe any estate tax. These estates belong to New Jersey’s wealthiest households.[5]

• Only 94 estates – the very largest, each of which has taxable assets of more than $5.34 million – pay 41 percent of estate tax in a given year. Eliminating this tax would give these wealthy families a tax break averaging $1.3 million – a reduction 58 times larger than the break for the families with taxable assets between $675,000 and $1 million.

estate tax breakdown-01

• The estate tax is clearly not a tax on the middle class. The median net worth of all Garden State households is $117,000 and the threshold for filing an estate tax return is five times that amount. Even households at the top – those with the highest 20 percent of assets – have an average net worth of $366,000, still far below $675,000 – the level at which the estate tax kicks in.[6]

• Even with New Jersey’s higher-than-average home values, the estate tax is clearly not a hardship for most of those the governor claims are “middle class families who want to pass down the family home.” In fact, the average home in New Jersey is worth $355,685, about halfway to the estate tax threshold. Not a single county has average home values of over $505,000. And less than 10 percent of municipalities – which represent just 4 percent of New Jersey’s population – have average home values of $675,000 or more.[7]

• Nothing passed on to a surviving spouse, civil union or domestic partner is subject to the estate tax. And the amount of estate tax owed is reduced by any New Jersey inheritance tax paid, ensuring that inherited wealth is not taxed twice.

Furthermore, there is no credible evidence to support the contention that taxing inherited wealth drives hordes of wealthy families to leave New Jersey before dying. While plenty of older people leave New Jersey every year, few are fleeing the estate tax. On the whole, older New Jerseyans leave the state to retire to warmer areas or in locales with lower housing costs or lower property taxes.[8]

The facts on supposed “tax flight” are clear:

• New Jersey 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.[9]

• Revenue collected from New Jersey’s estate and inheritance taxes has grown by 44 percent in the last 13 years, rising to $687.4 million in the 2014 budget year from $478.1 million in the 2001 budget year – making clear that claims of widespread estate tax avoidance by the wealthy are overblown at best.[10]

• New Jersey is consistently in the top 10 states for median household net worth and has an average household net worth at close to twice the national average.[11]

• Families and individuals appreciate the benefits of living in New Jersey, such as excellent schools, convenient access to two major cities and bustling small towns. These factors weigh much more heavily in location decisions than estate taxes.

Eliminating the estate tax would deprive New Jersey of resources needed to promote widespread prosperity while benefiting the state’s highest net-worth households the most. The Garden State does not need, and cannot afford, to take this step backward.

Endnotes

[1] New Jersey also levies an inheritance tax on assets passed on after death. The governor has not proposed eliminating this tax, which is related to but structured differently than the estate tax. For more information on both taxes, see: http://www.state.nj.us/treasury/taxation/inheritance.shtml
[2] New Jersey Office of the Governor, Governor Chris Christie’s 2016 State of the State Address As Prepared for Delivery, January 2016.
[3] The detailed breakdown of estate and inheritance tax collections and incidences used in this report is from an unpublished Office of Legislative Services analysis of Fiscal Year 2012 to Fiscal Year 2014 data provided to lawmakers in January 2015.
[4] The Economic Policy Institute’s Economic Analysis and Research Network, The Increasingly Unequal States of America: Income Inequality by State, January 2015.
[5] New Jersey Office of Legislative Services data (see endnote #3) show the average number of unique tax filings subject to either the estate or inheritance tax in Fiscal Years 2012-2014 was 6,991, while New Jersey Department of Health data (https://www26.state.nj.us/doh-shad/resources/BirthDeathData.html) show the average number of deaths in calendar years 2011-2013 was 70,646. To calculate the average number of unique filings, NJPP added the number of estate tax filers plus the number of inheritance tax filers who are likely to have had no liability under the estate tax based on the size of the taxable estate (net taxable assets under $1 million). This is likely a slight overestimate since the estate tax threshold is $675,000, not $1 million.
[6] Corporation for Enterprise Development and Haverman Economic Consulting analysis of the U.S. Census Bureau’s Survey of Income and Program Participation, 2008 Panel, Wave 10, 2013. For more: http://scorecard.assetsandopportunity.org/latest/measure/net-worth
[7] New Jersey Policy Perspective, Fast Facts: New Jersey’s Average Home Values Are Well Below Estate Tax Threshold, December 2015.
[8] Center on Budget and Policy Priorities, State Taxes Have a Negligible Impact on Americans’ Interstate Moves, May 2014.
[9] Phoenix Marketing International, Millionaires By State Ranking 2010-2014, January 2015, and Ranking of U.S. States By Millionaires Per Capita 2006-2013, January 2014.
[10] New Jersey Department of the Treasury, Comprehensive Annual Financial Reports, FY 2001 – FY 2014.
[11] Ibid 6

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