New Jersey officials strike budget deal
Tax relief laudable but underwhelming
INSIGHT ARTICLE |
Authored by RSM US LLP
New Jersey has a $10 billion budget surplus, but plans to play small ball with tax relief. In a recent announcement, Gov. Phil Murphy and legislative leadership announced a budget deal that includes less than $500 million in tax cuts, $320 million of which would be spent on a direct rebate of no more than $500 to married couples in New Jersey with income below $150,000 and at least one dependent child, or single parents with less than $75,000 in income and at least one dependent child. The remainder of the tax cuts would be divided between expanding the earned income tax credit, increasing homestead benefit payments, and making the child and dependent care credit refundable and available for families earning up to $150,000. General property tax relief and broadly-applicable rate reductions are nowhere in sight.
RSM State and Local Tax Policy Experts weigh in on New Jersey’s budget deal.
Brian Kirkell: There’s little to debate about New Jersey’s tax system. It features a discouraging mix of high rates, uncertainty, complexity, inconsistency and hyper-aggressive enforcement. The state could use some of its surplus to start down the path of addressing these issues. However, the state appears to have set other priorities. That is not to say that the proposed tax relief in the budget deal is not laudable. It certainly is. Putting money back in the hands of people who are very likely to spend it will operate as an injection of nearly $500 million into the state’s economy, and that is clearly a near-term positive outcome. But, the state could have done more from a tax perspective to encourage long-term sustainable growth at a relatively low spend as a percentage of the state’s overall surplus. In my opinion, this decision will come back to haunt New Jersey in the post-pandemic era of increased mobility and opportunity for digital nomads.
David Brunori: Given the current make-up of New Jersey’s state-level elected officials, the budget deal likely represents all the tax relief New Jersey individuals and businesses will see from the state’s $10 billion surplus. However, statewide elections are coming on Nov. 2, 2021, and some legislators are lining up additional tax relief as a key election-year topic. Keep watching. There is still uncertainty in the outcome.
I did not realize the surplus in New Jersey was so high. This is, in my opinion, a missed opportunity. Brian noted the myriad of problems with the state’s tax policy and administration. You would think the powers that be would use some of that extra money – and there is a lot – to make the state more competitive from a tax perspective. The state hammers the wealthy and businesses. High rates force the states to provide all kinds of incentives to businesses to remain in the state. Good tax policy is not built on high rates and narrow bases. No one expects New Jersey to become Tennessee or Florida. But remaining mired in a burdensome and inefficient tax system is a choice. A recent survey of CPAs said that half advised wealthy clients to leave the state! The tax cuts for lower and middle income residents is good of course. But even that seems paltry given the size of the surplus.
Mo Bell-Jacobs: Budget surpluses are generally great news. A $10 billion surplus is fantastic news. Now, I want you to hear me out. New Jersey is a great place to live. I said just hear me out - I see you rolling your eyes, but I’m not the only one who thinks this. Maybe I’ve been living in city centers too long, but New Jersey has a lot to offer from beaches to mountains – yes, New Jersey does have mountains! In fact, earlier this month, WalletHub released a report finding New Jersey as the best place to live, scoring high in their metrics for education and health, quality of life and safety. Although the report ranked the state almost last in affordability. The point is this. There are more remote workers than ever before. A number of states have considered proposals or have already enacted incentives to attract these workers. Louisiana wants your remote workers and is willing to provide a 50% individual income tax exemption for two years. New Jersey could be a leader in this space – bringing workers without borders to a truly great state and generating tax revenue through new individual income taxes, property taxes and sales taxes. A win-win scenario. Absolutely send money back to the taxpayers, but why not attract some new taxpayers in the process?
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This article was written by David Brunori , Brian Kirkell, Mo Bell-Jacobs and originally appeared on 2021-06-25.
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