Tax oppressive New Jersey

This morning the non-profit, non-partisan Tax Foundation released their 2009 State Business Tax Climate Index report.  The organization was founded in 1937.  They rate federal, state, and local tax policies.

Out of our 50 states, New Jersey came in #50.  NJ is declared the worst state in the US for business for a second year in a row.  The Tax Foundation hopes that policy makers will use their information as a tool to help improve the tax environment and create a more competitive environment.  For individuals the index can empower citizens to question the tax system and suggest improvements.   112 variables are used to measure taxes and are broken down into the five major tax categories.

“The Index ranks states based on the taxes that matter most to businesses and business investment: corporate tax, individual income tax, sales tax, unemployment insurance tax and property tax.  The states are scored on these taxes, and the scores are weighed based on the relative importance of the tax to economic activity.”

Neighboring Pennsylvania, ranking 28th, is in a good position to continue receiving business ‘refugees’ from NJ.  Southern NJ businesses can also relocate to Delaware, ranking #10, or Virginia #15.  The most business friendly state in the nation is Wyoming.  They’re #1, best business climate in the country.

Josh Barro, the author of the index, discussed the specifics of the report in relation to NJ.  The tax Foundation examines five principles of sound taxing policies.

·    Simplicity of taxes makes them easy to comply with.

·    Tax transparency gives businesses and individuals the ability to understand what is the actual tax burden.

·    Stability of the taxing structure enables businesses and individuals to forecast how their future may be affected by taxes.

·    Neutral policies equalize disproportionate burdens on single individual and business segments.

·    Business incentives that are pro-growth and designed to do minimal damage to the economy yet provide revenue that the state needs to function.

Identifiable underlying tax variables have negatively affected NJ’s climate.   Not all of the variables individually rate NJ to the bottom, but when the positives and negatives are combined the negative factors win out.  For corporations some of the elements affecting business are the restrictive carry forward rules on losses, tax credits for jobs and investment in research and development.  On the individual side there is a marriage penalty, high marginal rate in the tax code, and wealth taxes that include the real estate transfer tax, estate tax, and inheritance tax.

In addition to our specific NJ tax issues, we are faced with fiscal impacts from the banking crisis.  The Tax Foundation anticipates reduced income tax collections from job losses, smaller bonuses, reduced capital gain and dividend income, and volatility in graduated income taxes.  Also predicted are reductions in sales tax, corporate tax collections, and reality transfer tax revenue.

Suggestions were made on how the tax climate in NJ can be improved.  The scheduled decrease in the corporate tax rate to 9% in 2009 will be of some help in retaining businesses.  Policy makers should also examine improving the skewed sales tax base, repealing the reality transfer tax, reform estate and inheritance taxes.  For the long term, cuts in tax rates and property tax reform (remember that), were recommended.

Mike Illions from Conservatives with Attitude brought up the newly enacted Paid Family Leave Act and push for the increase in the minimum wage.  The Tax Foundation does not rate regulatory burdens.  We should also consider these in analyzing the specific business challenges for NJ.

Poor economic conditions are spawning numerous Assembly committee meetings in Trenton.  Assembly Speaker Roberts is assuring state workers that state worker layoffs are a last resort.  According to an article in the New York Times, New Jersey is facing an estimated $1.7 billion budget shortfall.

Meanwhile, Governor Corzine is calling for state departments to cut an additional five percent from their budgets.  This statement from Corzine is based on revised projections of what can be the expected in tax revenue to the state from a sliding economy.  Many of us have been screaming for cuts for years.

Time will tell if New Jersey ‘leaders’ define cuts in the same manner as taxpayers and businesses.  From the many news reports I have read, it is a case of too little and too late.