NJ Senator Proposes Bill with Tax Cut for Top Earners
November 5, 2015
A recent bill proposed by New Jersey Sen. Joseph Pennacchio, R-Morris, would provide a 1 percent tax credit for high net worth individuals earning over $500,000 annually. The goal of the bill is to stimulate the state’s economy and attract small businesses and multinational corporations and prevent state-to-state migration of the top earners in New Jersey.
The bill intends to reduce state-to-state migration
Sen. Pennacchio’s bill listed economic indicators that illustrate how high tax rates for businesses and high net worth residents have driven them out of the state, according to a New Jersey Spotlight report. The bill claims that stagnant growth has resulted from the 8.97 percent income tax for New Jersey’s highest earners, the ninth highest tax rate in the nation and top among northeastern states. This has prevented the state’s economy from remaining competitive with neighboring states such as New York, Connecticut, Massachusetts, Pennsylvania and Delaware. Further, Pennacchio cited the fact that New Jersey has the fifth highest corporate tax rate in the U.S. at 9 percent.
Pennacchio’s bill highlights how businesses and high net worth individuals are migrating to neighboring states for more favorable tax climates. According to a 2013 New Jersey census data, 70,000 New Jersey residents moved to neighboring states in 2013. At its current rate, the total, domestic outflow is projected to reach 400,000 for the years 2015 to 2020.
Details of the economic growth plan
Under Pennacchio’s bill, the state would reduce the current top-end income tax rate of 8.97 percent to 7.97 percent. The tax credit would significantly reduce tax revenue for the state as there would be one percent less charged on each dollar over $500,000.
It is not clear how the bill will impact the income tax revenue generated by the state, as a fiscal note has not yet been prepared by legislative analysts. However, Pennacchio argued that the bill will stimulate economic growth for more than 50,000 residents who earn over $500,000 per year, thus decreasing migration and stimulating local economies. The senator also explained that the bill will position New Jersey’s top-end income tax rate to become more competitive with New York at 8.82 percent, Delaware at 6.6 percent, and Pennsylvania at 3.3 percent.
The bill received the support of Gov. Chris Christie, R, whose administration has approved over $6 billion in corporate tax incentives since 2010.