Economy & Jobs
New Jersey Taxation Veto: Would Income Tax Hikes for Millionaires Help or Harm the Middle Class?
During his tenure, New Jersey Governor Chris Christie has repeatedly vetoed bills to increase the income tax on individuals making more than $1 million. “The legislature’s budget, if enacted, would accomplish nothing more than to repeat the failed, irresponsible, and unsustainable policies that were commonplace in Trenton for years before my administration,” Christie wrote in his veto comments. His response was to a 2014 New Jersey taxation budget proposal that would have created a three-year income tax rate hike for the top income bracket from 8.97 percent to 10.75 percent. The state’s Democrat-controlled legislation had intended for the hike to help fund the state’s public obligations, such as the state pension fund.
Christie reinforced this commitment in his 2015 State of the State address, in which he promised to reject any and all future income tax increase proposals. But how does vetoing a “millionaire tax” help the middle-class?
Who Pays the Most?
Proponents of tax hikes argue that they are a matter of fairness. According to the Institute on Taxation and Economic Policy, the poorest income bracket pays the most in local and state taxes, as a percentage of income, while the wealthiest bracket pays the least.
Proponents also argue that the current taxation system prevents states and municipalities from receiving a larger share of the wealth that the upper bracket has built up post-recession. In other words, higher taxation for the wealthy could help states and local communities develop or maintain infrastructure essential to the growth of their lower- and middle-income brackets.
The Millionaire Tax
Opponents of this millionaire tax argue that increasing taxes on the wealthy would not be effective. It might, in fact, cause this high-income bracket to move to another state. According to How Money Walks, New Jersey lost $22.30 billion in annual adjusted gross income to other states between 1992 and 2011, more than half of which went to income tax-free Florida.
This is troubling news for New Jersey and its neighbor, New York, which has seen the lowest growth rate of their top income bracket. New York, in particular, is highly dependent on revenue collected from wealthy individuals like Wall Street investors. Without high-income tax collection, the rate on the lower brackets might have to be raised.
This has led certain states to embrace tax policies that some might read as unnecessary. For example, New York has recently created a tax deduction that exempts part of the cost of a new yacht from sales taxes. Florida and New Jersey recently proposed similar policies that cap the amount of sales tax paid on a yacht. This makes buying a yacht in these states far more desirable.
Taking a look at the current tax structure reveals that currying the wealthy’s favor is an essential part of budget planning. It is clear that AGI is moving from states of high income taxes to those with lower or no income taxes. Should individuals of extremely high wealth leave a state, they bring with them a sizeable chunk of state tax revenue. It’s clear to see why Christie has vetoed bills proposing New Jersey taxation increases, especially for individuals making more than $1 million. However, the conversation on how to avoid creating a burden on those least capable of carrying it is still ongoing.