You can say one thing about New Jersey’s new governor Phil Murphy: he promised the state’s voters a progressive agenda of higher taxes and more spending, and that’s what he delivered in his budget proposal last week. Despite warnings from some of his fellow Democrats that he should tread carefully—New Jersey is already among the nation’s most highly taxed states, and some residents will shoulder a heavier burden from limits on state and local deductions in the new federal tax law—Murphy proposed $1.5 billion in new taxes on the wealthy, on everyone who purchases goods in Jersey, on marijuana (which is still illegal), and on hedge-fund managers.
Some Democrats are pushing instead a plan to raise corporate taxes, preferring that to higher taxes on millionaires. Though his state already collects taxes on a greater percentage of income than most others (only New York and Connecticut scoop up more), Murphy said that he needed the new revenue “to get things right,” adding, “we cannot afford to remain stuck, uncompetitive and unfair.” Echoing Gilbert & Sullivan’s pompous Major General Stanley, the Newark Star-Ledger, the state’s largest newspaper, called the plan “the very model of a modern progressive budget.”
Murphy claims that the state needs more “investment,” a word he invoked 22 times in his budget address. It’s an article of faith with him that taxes don’t drive businesses or people away—rather, lack of investment in quality of life is the culprit. He clings to this notion despite ample evidence that taxes do matter. In a survey by the New Jersey Business and Industry Association, just 14 percent of Jersey businesses said that they plan to expand further in the Garden State; 29 percent say that they’ll grow elsewhere. Their Number One gripe about the state is taxes. If Murphy wants to grow the state’s economy, he can’t expect much help from outside businesses, either: when Chief Executive magazine asked CEOs from around the country where they plan to expand, few mentioned Jersey, which ranked as the fourth least-desirable place to grow.
Residents feel the same way. In a national Gallup poll, New Jersey ranked among places that people most wanted to exit, with more than four in 10 of those polled looking to get out. It was unmistakable that taxes played a role in this decision, the nonpartisan polling group said: “Even after controlling for various demographic characteristics including age, gender, race and ethnicity, and education, there is still a strong relationship between total state tax burden and desire to leave one’s current state of residence.” When Monmouth College asked New Jerseyans why they would like to leave, their top reason was taxes. Another motive was to seek economic opportunity elsewhere. Did I mention that Murphy also plans to raise the minimum wage?
Given the aversion to higher taxes, it’s worth asking how Murphy got elected. In part, the answer is that he promised to tax the few—that is, the wealthy and those who indulge in weed. James McGreevey and Jon Corzine, the previous two elected Democratic governors, pursued a similar strategy. Both taxed high-earners, but neither stopped there. McGreevey raised taxes and fees more than 30 times before his brief, scandal-plagued tenure came to an end. His successor, Jon Corzine, not content with his millionaires’ tax, also enacted a $1 billion sales-tax increase that hit every resident.
Ironically, Murphy may get a short-term breather from the man he ran heavily against in his campaign—Donald Trump. The president’s federal tax-reform package jolted the stock market upward at the end of the year, helping to produce a bonanza of dividend and capital gains for investors that will result in higher personal income-tax collections. But the needs of Jersey’s voracious budget, accentuated by Murphy’s ambitious spending plans, will quickly gobble up that revenue, and Jersey’s prospects for seeing that kind of windfall in the future don’t look good. Murphy’s tax plan specifically targets certain rich investors—hedge-fund managers—for higher taxes. They were rushing out of New Jersey even before Murphy’s proposals. In 2016, the state’s richest resident, David Tepper, who operated the hugely successful Appaloosa Management, decamped to Florida, a state with no income tax. He was rumored to be paying more than $150 million a year in state taxes.
Just in case you were wondering why people are leaving New Jersey.
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