Correcting the Hacks on NJ Taxes

Nothing makes me crazier than hacky discussions of tax and fiscal policy. And if you want the hackiest hacking about New Jersey's taxes, there's only one place to go: the Star-Ledger's opinion pages, where you'll find conservative Mike DuHaime and "liberal" (snort) Julie Roginsky hacking out the hackiest fiscal hacking imaginable:

Mike: Trenton Democrats will never let a good crisis go to waste. They are using COVID to raise income taxes, raise business taxes, raise taxes on healthcare and borrow billions. I am surprised Sweeney and Coughlin are supporting an income tax increase. The top 1% of earners in New Jersey are paying 40% of New Jersey’s income taxes. The top 10% pay 70% of the taxes. Wealthy people are leaving New Jersey, and as they leave, it is the middle class who keep getting more and more of the tax burden.

Julie: This deal fell into place because Speaker Coughlin was committed to provide real relief to working middle-class families and was finally able to spearhead an agreement that does just that by providing families with children with the money to pay for back-to-school expenses and other bills next year.

Mike: This is less than one-half of 1% of a tax credit for the average New Jersey household. Taxpayers deserve structural reforms that lower the cost of government and lower our heavy tax burden.

Julie: I agree, Mike. But in all the years a Republican governor was at the helm, he never lowered the income tax rate for the middle class. This is the first real tax break middle class workers are getting in a generation.

Some debate: the Democrat agrees that New Jersey needs "...structural reforms that lower the cost of government and lower our heavy tax burden." The assumption by both, of course, is informed by received wisdom in Trenton: New Jersey is a heavily taxed state with out of control spending.

You'll also note Roginsky doesn't push back on DuHaime's claim that the state's top earners are paying an inordinately high share of the taxes. What a real debater would have noted is that simply focusing on income taxes is wrong when the state raises revenues through a mix of taxes, including gas, sales, transfer, corporate, and so on. Further, state taxes should be considered in combination with local taxes, as various states divide up responsibilities for providing services differently.

Since DuHaim is implying that New Jersey residents are leaving the state due to high taxes and high spending, let's take a moment to cut through the hackery and look at some basic facts.

1) New Jersey collects higher taxes than the US average, but is not a huge outlier in tax collections. We're number 8 in state and local taxes as a percentage of personal income, according to federal data collected from the Tax Policy Center. 

But remember that taxes are not the only sources of revenue for a state; across the nation, taxes only accounted for about one-half of all general state revenue in 2017.

2) When calculating own source state and local revenue as a percentage of personal income, New Jersey is below the national average. We're ranked number 31, well below the national average. 

3) New Jersey's state and local governments spend less of its citizens' personal income than most other states. On average state and local governments in the U.S. spend 18.3 percent of personal income on direct general expenditures; New Jersey, in contrast, spends 16.0 percent.

4) New Jersey is better than most of its neighboring states, and the U.S. as a whole, in tax progressiveness; however, the top 1 percent in the state still pay less in overall state and local taxes, as a percentage of income, than the middle class. In many states, the bottom 20 percent pay more of their income in state and local taxes than the top 1 percent. Thankfully, that isn't true in New Jersey; however, the top 1 percent still pay less overall than the middle 20 percent.

5) Tax flight of the wealthy from New Jersey is a myth that has been debunked for years. Let's have Sheila Reynertson of NJPP explain it:

As NJPP points out here, the number of wealthy taxpayers in the state has been growing, despite all the talk of this being a high-tax state.

To recap:

• New Jersey isn't an inordinately high-tax state.
• New Jersey is a relatively low spending state.
• New Jersey's wealthiest residents pay less in state and local taxes than its least affluent residents.
• The number of wealthy taxpayers has been steadily growing in New Jersey for years.

So please don't listen to the political hacks when they tell you we desperately need massive spending cuts. What we need is smart, targeted revenue growth that asks the wealthiest residents to pay their fair share. The millionaire's tax is a meaningful step in the right direction.