David Tepper was once New Jersey’s richest resident. The Short Hills-based hedge-fund manager with an estimated net worth of $11 billion didn’t fall victim to market forces. Rather, he left Jersey entirely, joining dozens of wealthy individuals who have set up shop in Florida, a state with no income tax. Jersey is set to see a $162 million drop-off in tax collections this fiscal year—much of it, according to press reports, the result of Tepper’s exit. Now, Trenton lawmakers must once again scramble to balance the Garden State’s troubled budget.

In February, the New Jersey Business and Industry Association released a study showing that from 2004 to 2013, the state lost a total of $18 billion in net adjusted gross income. In 2013, the gap between money coming in and going out soared to $3 billion. The study also found that the income gap jumped appreciably between 2004 and 2005—that is, after Governor Jim McGreevey hiked income taxes on those earning more than $500,000 a year. McGreevey’s successor, Jon Corzine, subsequently added another temporary surcharge on wealthy taxpayers. In 2010, the last year that it was in effect, the net loss from outflow of tax dollars increased sharply again. Current governor Chris Christie let the Corzine surcharge expire—even though the Democratic legislature keeps voting to bring it back—but at 8.97 percent, Jersey’s top income-tax rate remains one of the nation’s highest.

According to the NJBIA study, between 2006 and 2010, 19,000 seniors left New Jersey, with the top destination being warm-weather, tax-friendly Florida. New Jersey is one of only two states with both an estate tax and an inheritance tax. The estate tax kicks in at a mere $675,000 of wealth (the federal estate tax exempts income up to $5.45 million). The Number Two state for seniors fleeing New Jersey is neighboring Pennsylvania, which is somewhat colder but has a far more temperate tax climate.

Jersey’s tax-and-spend politicians and the interest groups that support them— notably public sector unions—consistently argue that taxes don’t drive people away. “There is not a shred of credible evidence pointing to estate taxes or income taxes as the reason these people take their income elsewhere—there’s only myth and anecdote,” said the head of New Jersey Policy Perspective, a left-leaning think tank, earlier this year. But that’s true in New Jersey only if you ignore what people actually say. A 2014 Monmouth College poll found that nearly half of all residents said they would leave the state if they could. About three in ten listed Jersey’s high taxes as the primary reason they wanted to go. In a recent Gallup poll, Jersey tied with Connecticut as the top state that residents say they want to leave—at 46 percent of those polled. “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,” noted Gallup.

The Garden State’s budget woes, exacerbated by Tepper’s departure, also illustrate another truism of many high-tax states: there never seems to be enough money. McGreevey’s tax hike on the rich was supposed to take care of the state’s budget woes, but Trenton didn’t restrain spending. McGreevey himself once increased the annual budget by a whopping 17 percent. Corzine promised spending and pension reform but delivered neither. The taxes kept piling up on residents, including a boost in the state’s sales tax and a tax that people selling their homes have to pay for no other reason than that the state desperately needs money. Today, New Jersey collects more money per resident than just about every other state, but it still can’t balance its budget. It doesn’t help that the state’s economy has been underperforming for more than a decade. Businesses consistently rank it as one of the places where they are least likely to expand. According to the Tax Foundation, Jersey has the worst business tax environment in the country.

Ironically, many tax-and-spend interests in the Garden State won’t be sad to see Tepper go, despite the riches he takes with him. That’s because he put a big chunk of his wealth into education reform, battling the teachers’ union and supporting candidates who preached such heresies as tougher standards for teacher evaluations. One hyperactive critic even accused Tepper of trying to destroy public education so that he could engineer a “Wall Street takeover” of schools. According to press reports, Tepper displayed a pair of brass unmentionables in his office to symbolize the kind of moxie one needed to operate in the high-stakes hedge-fund world—and to battle public unions. But math has triumphed over moxie, at least in New Jersey.

Photo by Bennian/Getty Images


City Journal is a publication of the Manhattan Institute for Policy Research (MI), a leading free-market think tank. Are you interested in supporting the magazine? As a 501(c)(3) nonprofit, donations in support of MI and City Journal are fully tax-deductible as provided by law (EIN #13-2912529).

Further Reading

Up Next