Last month, New Jersey Senator Joseph Pennacchio (R-Morris) proposed a bill that would reduce the state’s top income tax rate by one percent. Despite criticism from Democrats, Pennacchio touts this move as a step toward improving New Jersey’s economic growth.
Since 2004, when Gov. McGreevey increased the top rate by 2.6 percent, New Jersey’s highest earners have been saddled with an 8.97 percent income tax burden. This has proven to be an insurmountable hurdle in keeping New Jersey’s economy competitive with its neighboring states. Among several contributing factors are the high tax rates, as Sen. Pennacchio points out, New Jersey has the highest income tax rate in the area and ninth highest nationally. Of its neighbors, New York is a close second at 8.82 percent, but the next highest is only 6.7 percent in Connecticut, 6.6 percent in Delaware, and 5.15 in Massachusetts. Pennsylvania, the state’s largest border-sharer, rounds out the bottom with a flat rate of 3.07 percent.
As a result, New Jersey currently has the worst business tax climate in the nation. In fact, New Jersey has been last or second to last in the ranking of all fifty states since 2012, due in large part to the number of small businesses in the state that are forced to pay the burdensome top income tax rate. For those businesses that do pay the corporate tax rate, they’re saddled with as high as 9 percent tax on earnings, which is the fifth highest top rate in the nation.
The unfavorable business climate has caused Garden Staters to pack up and move to neighboring states where they are able to keep more of their income. According to the most recent census data of state-to-state migration, tens of thousands of former New Jersey residents move to neighboring states each year. In the year 2013 alone, no less than 70,000 former New Jersey resident had moved to New York, Connecticut, Delaware, Massachusetts or Pennsylvania within the last year. New Jersey’s domestic outflow to any of the fifty states between 2000 and 2005 was 200,000. At the current rates, out-migration to its neighbors alone is on track to nearly double that total number over the next five year period.
Sen. Pennacchio is also the cosponsor of another piece of legislation that aims to lower gross income tax rates by ten percent over the next three years. As economic indicators have illustrated over the last several years, high taxes have driven businesses and residents out of New Jersey and caused stagnant growth. Democrats have tried to impose more tax hikes on the top earners in the state, but Governor Christie has successfully held the line and avoided even further detriment to the state’s economy. Pennacchio and other Republican senators are introducing pro-growth legislation that takes a step in the right direction to turn around New Jersey’s economy.