A new study shows New Jersey’s tax structure is the worst in the U.S., thanks to its nation-leading property taxes, second-highest corporate tax and some of the worst-structured individual income taxes.
The Tax Foundation’s 2019 State Business Tax Climate Index, published Wednesday, ranked New Jersey 50th, citing the state’s high taxes and its inequitable and non-neutral tax incentives.
Jared Walczak, lead author for the report, said the state has picked winners and losers in its tax structure by offering carve-outs and tax exemptions for the types of businesses the state wants to attract or retain, ultimately dragging down its overall ranking.
“Ideally a tax code should be as neutral as possible, it shouldn’t be picking winners and losers,” Walczak said. “The goal of the tax code is to raise revenue, not to influence behavior. But New Jersey, because of the high rates, offers a wide range of incentives for certain investment and business activity.”
The New Jersey Economic Development Authority oversees the state’s two largest economic incentive programs: Grow New Jersey and the Economic Redevelopment and Growth tax credits, both of which are scheduled to sunset on July 1, 2019.
Under former Gov. Chris Christie, the NJEDA awarded $8 billion in tax credits. Gov. Phil Murphy, critical of that practice, plans to review these incentives as part of the state’s broader economic strategy.
Jared Walczak, Tax Foundation
The Tax Foundation’s report points out that in exchange for a gas tax increase, New Jersey this year completed the phase-out of its estate tax and reduced the sales tax from 6.875 percent to 6.625 percent, both of which were positive factors for the state, the report notes.
“At the same time, however, lawmakers created a new individual income tax bracket with a rate of 10.75 percent, the third-highest in the country, and added a corporate income tax surcharge on companies with income of $1 million or more, which brings their tax rate to 11.5 percent,” the report reads.
The state also ranked 50th for its individual income tax and 47th in corporate income tax.
Higher taxes alone would not lower a state’s ranking, Walczak said. He pointed to Kentucky, which since last year jumped from 39th in the nation to 23rd overall yet still generated $400 million in new revenue.
“They have a simpler, more equitable tax code,” Walczak said. “They simplified and consolidated rates and brackets on both their individual and corporate income taxes, eliminated some of the deductions and exemptions on both, and repealed and outmoded capital stock tax.”
Senate Minority Leader Tom Kean Jr., R-21 District, said the report highlights why the state needs to reverse its trend of tax increases.
“Even after this last-place ranking, New Jersey Democrats are continuing their efforts to cement the Garden State’s reputation as a bad place to do business,” Kean said in a statement. “This continued instability in our state’s tax policy poses a very real threat to New Jersey’s efforts to retain employers when those businesses can find more predictable and tax-friendly environments in other states.”
