In order for New Jersey to see its economy grow, it is critical we attract new businesses and retain the ones that are here. The business climate and the attractiveness of New Jersey depends on a number of factors. How do these factors look to businesses?
When a business is searching for a location, the primary concern is that the location will provide the greatest opportunity for success. What is generally needed for success, depending on the business, is a qualified labor pool, reasonably priced resources, adequate transportation facilities, a business-friendly state government and easy access to markets. New Jersey could easily attract new businesses because many of those factors are present in the state. The problem lies with the factors that are not present.
On the positive side, access to transportation facilities is excellent. New Jersey has railroads, airports, seaports and many major highways for trucks. This makes it relatively easy to transport goods and easy for New Jersey's high quality labor force to move about the state.
In addition, about 25 percent of the population of the country is located within a day's commute, making it easy to reach the customers. And New York City is just across the river. For those reasons, so many businesses have chosen New Jersey in the past. But what about the future?
Most business leaders are aware of the difficulties and challenges trying to keep the company profitable. Competition in the market, an unsure economy, government regulations, taxes and general uncertainty all create risk for business leaders. While these factors apply to any business in any state, businesses will choose a state where few, if any, additional risks are added. Unfortunately, New Jersey adds many.
In September, the Tax Foundation released its State Business Tax Climate index which ranks each of the 50 states based on the tax liability that businesses incur within that state. For the fourth consecutive year, New Jersey ranked 50th, dead last. American corporations are already among the highest taxed in the world on a federal level and New Jersey just adds to that burden. This is a very critical problem for New Jersey, especially because the Department of Labor notes that while job growth overseas is substantial, most mass job relocations are from one state to another. The Tax Foundation considers corporate income tax, individual income tax, sales tax, unemployment tax and property tax.
While we are all interested in protecting the environment and the ecosystem, New Jersey has a number of different agencies that must be consulted when building a project in New Jersey, especially if it is close to a sensitive area. The lack of adequate coordination among agencies in addition to the federal agencies that must also be informed, make building projects extremely difficult, time consuming and costly.
So what can be done to improve the business climate?
First, taxes must be reduced significantly. Corporations pay 35 percent of income to the federal government and then New Jersey charges 9 percent for "the privilege of having its corporate charter" in New Jersey. Then there is a sales tax of 7 percent the customers will pay on almost everything that a business sells to the public. On top of that, the business will pay the highest property taxes in the country on their facilities. Their successful employees will pay up to 39 percent on marginal income to the federal government and then as much as 10.75 percent to New Jersey. Add to that the hidden taxes on gasoline, alcohol and cigarettes and New Jersey is simply not attractive.
Lower tax rates during a time of slow recovery (coming off of a severe recession) is difficult. But in the long term, lower tax rates may actually bring in more revenue if there is a substantial increase in activity. After all isn't 20 percent of $1,000 more than 30 percent of $500?
As the economy recovers from the severe recession, it will be imperative that New Jersey attract and retain businesses. This will mean more jobs and higher incomes for New Jersey residents. In order to do that, we must be business friendly. That means setting tax rates that are attractive to business and rates that will provide long-term revenue for the state by increasing the tax base. If we don't do this, New Jersey will not recover as well as other states, likely forcing many residents to relocate. That benefits no one.
Michael Busler is an associate professor of finance and a fellow at the William J. Hughes Center for Public Policy at Richard Stockton College.