New Jersey’s high taxes may be costing the state billions of dollars a year in lost revenue as high-earning residents flee, according to a recent study.
The study, Exodus on the Parkway, was completed by Regent Atlantic last year but held for publication until after the November 2013 elections. The study stated it “intentionally” held its results “as 2014 is not an election year for state legislators” and it will “hopefully encourage a serious and objective dialogue aimed at addressing and solving the challenges that New Jersey currently faces.”
The study shows the state has been steadily losing high-net-worth residents since 2004, when Democratic Gov. Jim McGreevey signed the millionaire’s tax into law. The law raised the state income tax 41 percent on those earning $500,000 or more a year.
“The inception of this tax, coupled with New Jersey’s already high property and estate taxes, leaves no mystery about why the term ‘tax migration’ has become a buzzword among state residents and financial, legal, and political professionals,” the study, conducted by Regent states.
Democrats in New Jersey have been pushing for even higher taxes on the wealthy in recent years. They have failed three times to raise the millionaire’s tax even higher than McGreevey did under threat of a veto by Governor Chris Christie.
The wealthy aren’t the only ones being asked to pony up. This week Democratic State Sen. Ray Lesniak proposed a 5-cent per gallon gas tax to pay for transportation repairs and improvements and Assembly Speaker Vincent Prieto (D.) has indicated he would be open to considering several new taxes and fees to boost revenue for the state, including a tax on water consumption.
Such tax hikes are driving residents to states with lower tax rates: In 2010 alone, New Jersey lost taxable income of $5.5 billion because residents changed their state of domicile.
“Prior to the millionaire’s tax, more wealth was coming into the state than was leaving. Over a four-year period the aggregate net worth increased by $98 billion,” the study states. “However, the 2004-2008 post-millionaire’s-tax period shows more wealth leaving the state than coming in. The net outflow during this period reversed 70 percent of the wealth gained in the prior four years.”
This study contradicts previous studies that claimed higher taxes on the wealthy have negligible impact and do not drive the wealthy to move.
High wage earners, who constitute only 1 percent of the population in the state, pay 42 percent of the personal income taxes collected. The state collects $10 billion in personal income taxes and high-income residents pay $4.2 billion of that total. Personal income taxes account for 39 percent of the state’s total income.
“The sad reality is our residents are suffering because politicians talk a good game, but no one is willing to step up to the plate,” Americans for Prosperity New Jersey state director Daryn Iwicki said. The “oppressive tax climate is driving people out.”
Iwicki said instead of fixing the “tax and spend problem” in the state, higher taxes have been proposed.
“We have members calling for taxes ranging from a bag tax, water usage tax, water bottle tax, increasing the gas tax, and an increase in the income tax,” he said. “In fact, every time talks of a tax cut have been brought up, Democrats laugh at the idea. They must be the only folks who think this is a joke because while they are laughing people are leaving.”
The New Jersey Senate Democratic Caucus did not respond to a request for comment.
One certified public accountant quoted in the study said he lost 95 percent of his high net worth clients. Other tax attorneys report similar results.
“New Jersey income and estate taxes have become such a prominent issue that residency has become a prime topic in every other meeting that I have,” said Sam Weiner, a tax attorney with Cole Schotz who was quoted in the study.
Michael Grohman, a tax attorney with Duane Morris, LLP, claimed his wealthy clients are “leaving [New Jersey] as fast as they can.”
“It’s a shame, New Jersey used to be an economic powerhouse,” Iwicki said. “Politicians have done nothing but tax and spend the folks.” He himself left the high taxation of New Jersey for the south, but has since moved back.
If the current trend is not reversed, the consequences could be dire.
“Essentially, we’ll find ourselves much like the city of Detroit, broke and without jobs,” Iwicki said.