Okay, so the headline is hyperbole, but Bloomberg Markets and Business Insider this week are reporting that New Jersey’s budget estimates might be off due to the move of one man—hedge fund manager David Tepper—from New Jersey to Florida.
The decision by billionaire hedge-fund manager David Tepper to quit New Jersey for taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. -friendly Florida could complicate estimates of how much tax money the struggling state will collect, the head of the Legislature’s nonpartisan research branch warned lawmakers.
Tepper, 58, registered to vote in Florida in October, listing a Miami Beach condominium as his permanent address, and in December filed a court document declaring that he is now a resident of the state. On Jan. 1, he relocated his Appaloosa Management from New Jersey to Florida, which is free of personal-income and estate taxAn estate tax is imposed on the net value of an individual’s taxable estate, after any exclusions or credits, at the time of death. The tax is paid by the estate itself before assets are distributed to heirs. es.
His move has state revenue officials on alert.
“We may be facing an unusual degree of income-tax forecast risk,” Frank Haines, budget and finance officer with the Office of Legislative Services told a Senate committee Tuesday in Trenton.
New Jersey is known for its heavy tax burden on both individuals and businesses. It ranks last place overall on our 2016 State Business Tax Climate Index and is ahead of only California and New York when it comes to the individual income taxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source of tax revenue in the U.S. ranking.
New Jersey’s top income tax bracketA tax bracket is the range of incomes taxed at given rates, which typically differ depending on filing status. In a progressive individual or corporate income tax system, rates rise as income increases. There are seven federal individual income tax brackets; the federal corporate income tax system is flat. is 8.97 percent, which applies to all income over $500,000, making the state dependent on a relatively small number of taxpayers in the top income tax bracket.
The New Jersey Office of Legislative Services reports each year how much is paid by different income groups into the state’s individual income tax and we’ve graphed it below (data on page A-22 here). Returns with income greater than $1 million accounted for 31 percent of all collections in 2012.
Frank Haines, a budget and finance officer at the New Jersey Office of Legislative Services, addressed this before the Senate Budget and Appropriations Committee on Tuesday:
Our personal income tax comprises about 40% of our revenue base, and relies on less than 1% of taxpayers for nearly one-third of that revenue…even small departures from our expectations for the income tax can make other problems seem small by comparison. A one percent forecasting error in the income tax estimate is worth $140 million. We may be facing an unusual degree of income tax forecast risk if news reports are true that the person ranked by Forbes Magazine as the wealthiest New Jersey resident has shifted personal and business domicile to another state.
This goes without saying, but it is highly unusual for the departure of just one citizen to have this much of an impact on state revenues, and it is certainly a big downside of having such a progressive individual income tax.