The Obama Administration yesterday backed down from its plan to tax the earnings on 529 savings accounts, a kind of saving account for higher education under section 529 of the tax code. At Bloomberg, Richard Rubin and...
- The Tax Policy Blog
- New Jersey Once Again Considers Tax on High Earners
New Jersey Once Again Considers Tax on High Earners
The state of New Jersey is once again hearing calls for a “millionaire’s tax,” with State Senate President Stephen Sweeney (D) saying he is “dead serious” in wanting to impose a millionaire’s tax, and that tax hikes should be “on the table” in New Jersey’s ongoing budget debate. This isn’t the first time in recent years that New Jersey has seen debate on this topic: Governor Christie (R) has vetoed tax increases on high-earners three times before. It’s also not the first millionaire tax proposal in the states we’ve seen this year. One prominent proposal in Illinois to tax millionaires in order to increase education spending, for example, recently failed.
These “millionaires’ taxes” are poor policy, as we’ve explained numerous times in the past. They are narrow, high-rate taxes on a mobile group of people, and the spending such a tax increase supports leads to voters mistakenly thinking they got “something for nothing.” U.S. Senator Russell B. Long (D-LA) famously quipped that this kind of tax policymaking was merely “Don’t tax you, don’t tax me, tax that fellow behind the tree!”
Yes, such taxes will generally raise revenue in the short term without an abrupt exodus of wealthy people fleeing to the state next door (especially when the states next door also have fairly high taxes). But over the longer term, higher taxes can negatively impact the Garden State’s economy by discouraging firms from locating or expanding in New Jersey instead of other possible locations, or by incentivizing outward migration for upwardly mobile workers and entrepreneurs.
Beyond that, states don’t get into fiscal trouble just because of their tax codes. As we’ve explained before, a state's public finance record is partly influenced by revenue, but also by tax structures (volatile taxes like progressive income taxes encourage overspending in good economic times, causing a deficit during economic contractions), spending policy, division of responsibilities with the federal and local governments, and financial management. New Jersey is already one of the highest-taxed states in the nation (indeed, it was tied for the last Tax Freedom Day this year), with the 6th highest state and local taxes per capita, and 7th highest state and local total revenues per capita. With such funding levels, the source of New Jersey’s fiscal woes is likely more to do with too-high spending levels than too-low taxes.
Read more on New Jersey here.
Read more on Millionaire Taxes here.
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