New Jersey Shows Exactly What NOT To Do

By at 15 October, 2020, 11:51 am

by Raymond J. Keating-

What’s in the water in New Jersey? Elected officials in the Garden State are making the wrong decisions on a regular basis, especially when it comes the inflicting heavier governmental burdens on individuals, families, entrepreneurs, and small businesses.

There was a time – decades gone by – when people from New York, for example, used to flee to New Jersey to escape high taxes and other governmental burdens. That’s no longer the situation.

In fact, a case can be made now for fleeing from New Jersey to New York – and that’s saying something considering that New York still has one of the most hostile tax and regulatory climates in the nation. In fact, New Jersey had no personal income tax until July 1976 (what a terrible way to mark the nation’s bicentennial), and now it has one of the highest tax rates in all the land.

Again, New Jersey elected officials have been working diligently to make their state as inhospitable as possible. Consider New Jersey’s latest move.

Amidst a recessionary-pandemic economy, state lawmakers decided to jack up taxes on upper-income earners in the state. Late last month, at the urging of Governor Phil Murphy, state legislators approved legislation that will take the state’s top personal income tax rate of 10.75 percent – third highest among the states – which had applied to earnings over $5 million, and impose it on earnings over $1 million. So, the rate on earnings between $1 million and $5 million moves from 8.97 percent to 10.75 percent.

Only two states – California and Hawaii – impose higher top income tax rates than New Jersey.

What’s the problem with hiking tax rates on high incomes? There are several issues.

First, any kind of tax increases will hurt the economy by draining resources away from productive private sector undertakings, and channeling those resources into political, less productive ventures. That’s never an economic positive, and is particularly troubling in down economies.

Second, increasing income taxes on upper-income earners provides added incentives for those earners to move elsewhere.

Third, the personal income tax is paid by most businesses, i.e., by S Corps, LLCs, sole proprietorships and partnerships. Increased taxes on those enterprises mean fewer resources and incentives for investing in, sustaining and/or building businesses, and for hiring employees.

Fourth, New Jersey personal income tax rates apply to individual capital gains as well. Of course, increasing the capital gains tax means reducing the potential returns on investing in new and expanding businesses. That’s an excellent way to reduce and chase away entrepreneurship in New Jersey. Entrepreneurship and investing are fraught with risk and uncertainty, so raising taxes on capital gains is a particularly destructive tax increase.

(By the way, as an important side note, former Vice President Joe Biden might want to take note of these negatives, as he is pledging to increase taxes on upper income earners, as well as on corporations, if he becomes president. There is a significant economic price to pay for such misguided policymaking, whether at the state or federal levels.)

Hiking taxes on high-income earners is all about posturing, class-warfare politics. It certainly isn’t about sound tax policy, nor about sane economics.

Like I said, New Jersey’s lawmakers are working very hard to make it very hard for individuals and businesses to survive, thrive or stay in New Jersey.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.


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