The state budget enacted July 1 increased the tax rate on corporations earning more than $1 million a year by 28 percent.
Even before that major increase, the nonprofit and nonpartisan Tax Foundation this year rated New Jersey’s business tax climate the worst among the 50 states … again.
New Jersey is also a highly regulated state with a history of strong unions. It ranks sixth nationwide in the rate of union membership, which covers more than 16 percent of residents.
High taxes, heavy regulation and government support for unions combine to strongly discourage major businesses from coming here, staying or expanding.
The historic response of elected officials has not been to reduce those anti-business factors but to try to offset them by offering companies financial incentives.
As New Jersey’s business climate has worsened, such incentives have soared. During the eight years of the Christie administration, $8 billion in tax credits and other incentives were awarded to corporations. While Gov. Phil Murphy has ordered an audit of those subsidies, he has enthusiastically supported the biggest tax break offer of all — the state’s record $5 billion package to lure Amazon to pick Newark for its second headquarters.
Tax credits are appealing to elected officials because they get to claim credit for companies and jobs coming or more often kept in the state, while the extravagant cost of those jobs comes due much later — often after they’re out of office. According to the N.J. Economic Development Authority, each retained or new job from the $8 billion in Christie-era incentives is expected to cost the state $77,000.
Spending future tax revenue from companies is just like borrowing — but instead of paying it back, the state has to do without it in the years ahead. Well, those years are arriving now. This year the state is losing $545 million from tax credits and grants awarded in the past, a 12 percent reduction in corporate business tax revenue. If companies use all of what has been awarded to them, within two years the state will be out more than $1 billion a year.
This ensures higher taxes for the businesses and residents who aren’t getting the credits and grants. The worst thing, though, is that this combination of a discouraging business climate and special deals for a handful of large companies has contributed to America leaving New Jersey behind the past decade.
The growth rate of personal income in the United States, from 2007 to 2017, was 3.2 percent a year, according to the federal Bureau of Economic Analysis. For New Jersey residents, personal income grew by only 2.5 percent a year.
Likewise the state has seriously underperformed the nation on the broadest measure of economies, real growth in gross domestic product. The U.S. economy grew at 1.2 percent a year the past decade after adjusting for inflation. New Jersey? Barely at all, just 0.2 percent a year.
New Jersey’s high-spending, heavy-taxing big government might be working well for its officials, its union workers and a small number of subsidized corporations, but it is poorly serving the people of the state. At some point they may decide their elected officials are doing the same.