The WasteWatcher: The Staff Blog of Citizens Against Government Waste

New Jersey Politicians Argue About Which Taxes To Raise

The WasteWatcher is the staff blog of Citizens Against Government Waste (CAGW) and the Council for Citizens Against Government Waste (CCAGW). For questions, contact blog@cagw.org.


There is a lesson to be learned from the dispute between political insiders in New Jersey that has unfolded over the last couple of months regarding raising taxes. 

Throughout 2017, gubernatorial candidate Phil Murphy (D) pledged that, if elected, he would implement a millionaires’ tax in the state: a tax of 10.75 percent on all income over $1 million.  Since taking office, he has kept up the pressure.  In a speech after his first hundred days as governor, Murphy reiterated his call for the millionaires’ tax, as well as other tax increases, like a sales tax increase to 7 percent from 6.625 percent.

Murphy’s fellow Democrat, State Senate President Steve Sweeney, also wants to raise taxes but is not on quite the same page.  He prefers to raise taxes on corporations, not on personal income over $1 million.  Sweeney is concerned that “when the millionaires move out, the responsibility gets spread amongst the middle class, and they’re the ones that can’t move.”  On this point, he is absolutely correct.  Millionaires are a mobile group of Americans.  They can afford to move, typically work largely for themselves and have plenty of career options, and, if they prefer to live in one state and travel to another for work, it is easy for them to do so.  In many states, millionaires already pay for huge proportions of government spending.  For example, in California, the top 1 percent of earners paid 48 percent of the total taxes in 2014.  If ten percent of those people move across to the border to Nevada, which has no income tax, California’s budget will have a massive hole and there will be fewer millionaires to soak.  Senate President Sweeney is wise to oppose a tax increase that will cause more high-earning New Jersey taxpayers to flee to places where their income will not be taxed, like Florida, Tennessee, and Texas.

But Sweeney is wrong to favor tax increases for New Jersey businesses.  Ultimately it is not corporations but people who pay corporate taxes—through lower wages, fewer benefits, and fewer jobs for employees, and lower returns for investors and shareholders.  His rationale for wanting this particular increase in taxes is particularly egregious: like many blue state politicians, he is upset at the historic federal tax reform that was enacted in December 2017, which reduced America’s corporate tax rate to 21 percent from the astronomical level of 35 percent.  This reduction has led to millions of bonuses, pay increases, utility bill reductions, increases in retirement contributions, and more for American workers.  But Sweeney wants to require corporations in New Jersey to fork over some of their savings to the state government, jeopardizing the economic gains that have been made thanks to President Trump and Congress.  New Jersey’s compound annual GDP growth rate was 0.1 percent from 2006 to 2016, one tenth the national average.  What New Jersey has been doing has been harmful to job creators, yet Sweeney thinks the answer is another tax increase—one that directly attacks the businesses that have finally gotten a significant reduction in taxes after paying the highest rate in the industrialized world for decades. 

The Trump tax cut also capped the State and Local Tax (SALT) Deduction at $10,000.  Now, the citizens of New Jersey will finally see the true cost of their sky-high state taxes. 

And it’s not looking good: wealthy taxpayers are fleeing the Garden State “like it’s on fire.” 

If either or both of Governor Murphy’s proposal for a millionaires’ tax and Senate President Sweeney’s preference for a vengeful corporate tax hike were to become law, New Jersey’s business tax climate, already the worst in America, would have even dimmer prospects of ever changing.  Instead of arguing about which taxes to raise, New Jersey politicians should be cutting unnecessary spending and eliminating duplicative programs so they can argue instead about which taxes on individuals and businesses need to be lowered.

“Lower taxes in New Jersey” may sound like the punchline of a joke or the name of a trashy TV show, but were the state to take that step, the benefits would be vast.  Because of the state’s proximity to New York City and Connecticut, well known for their exorbitant taxes, we could see a huge influx of hedge fund managers to Jersey.  Instead of buying a beach house in Florida to retire, perhaps locals would opt for one closer to home on the Jersey Shore.  Companies looking for a location in the tri-state area would make the easy decision set up shop in the Garden State.

It may seem like a pipe dream, but hope is a virtue. 

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