Yes, New Jersey is a High-Tax State

Paul V. Tyahla
Executive Director

Introduction

Many in the legislature and public have shown an interest in New Jersey Policy Perspective (NJPP) research and an op-ed, purporting to demonstrate that New Jersey is not the nation’s highest-taxed state. The NJPP research, using Census data on governments, appears to show New Jerseyans pay the eighth-largest share of their income in state-local taxes, and are fifth on a per-capita basis. While neither ranking would be cause for celebration, the NJPP piece does open a legitimate discussion on how taxes collections should be attributed, and the need for a simplified tax code.

Exporting Taxes

While NJPP uses a significant portion of its op-ed to criticize the methodology of the Tax Foundation, the two organizations reach one remarkably similar conclusion. NJPP claims NJ residents pay 12.1% of their income in state-local taxes, while The Tax Foundation puts the figure at 12.2%.

The most contentious difference is in the rankings, and much of this involves taxes that are “exported” by states. While NJPP claims the Census data to be the “cleanest” and describes the Tax Foundation methodology as “convoluted”, being clean does not necessarily mean a methodology accurately describes a state of affairs. For example, NJPP concludes that Alaska is the nation’s most-taxed state, both in terms of share of personal income and on a per-capita basis. However, most of the tax revenue generated in The Last Frontier comes via taxes on oil. Alaskans pay only a small percentage of this tax, with the rest passed along by oil companies to consumers in other states. So while dividing Alaska’s tax revenue by its population and income may be clean, it does not accurately describe the tax burden shouldered by the average resident. Other states, especially those with strong energy or tourism sectors, also successfully place their tax burden squarely on the backs of non-residents.

In New Jersey, this comes into play with the state’s income tax. New Jerseyans who work in New York pay most of their income tax dollars to Albany and not Trenton, and vice versa. This results in more than $2.5 billion in revenue to the Empire State. The Tax Foundation methodology would charge this money as a tax burden on New Jerseyans, since they are the ones paying the tax.

CSI-NJ believes this to be an accurate way to assess a burden. The goal of such rankings is not to divide blame and praise or grade 50 state governments on a curve; it is to describe what percentage of income residents pay in state-local taxes. A resident of Montclair, paying very high income taxes to New York and extraordinarily high property taxes in New Jersey, takes no comfort, and does not have an easier time making ends meet, knowing that the burden is not entirely the fault of New Jersey’s tax code.

New Jersey legislators must deal with the structural advantage long ago ceded to New York, and operate with the understanding that New Jersey residents pay high income taxes there. The Tax Foundation survey attempts to describe the life of the taxpayer of a given state.

While methodology drives part of New Jersey’s high rank, our tax code is also very burdensome. We have among the highest top marginal income tax rates in the nation, the highest property taxes, and high corporate business taxes. If individual legislators are concerned with New Jersey’s comparative ranking, these are the areas to address, and the legislature deserves credit for making progress on the state’s property tax situation.

Conclusion

Fortunately, New Jersey Policy Perspective acknowledges that New Jersey is an above-average tax state, even if the group argues the Garden State is not the “most-taxed”. Some organizations have used Census data to demonstrate New Jersey was simply an average-tax state, and that deeply-flawed methodology was repeated in the media. At least more groups now agree that New Jerseyans do pay higher taxes than most of the nation, which makes this argument largely academic.

Policy analysts can argue passionately and reasonably as to whether a clean methodology is preferable to one that tries to assess burden based on a citizen’s actual experience, but neither outcome should change the goal of New Jersey legislators.

Ultimately, if a policymaker believes the state to be “only” the fifth or eighth most-heavily taxed, it would not be cause to open a bottle of champagne. The state is still one with high taxes and dimming memories of robust private-sector job growth.

The job of legislators to simplify the tax code and make it less burdensome on New Jersey families remains unchanged.