New Jersey should celebrate the lapse of the corporate business tax
Nobody should be taking a victory lap because the new New Jersey state budget does not extend the corporate business tax surcharge. New Jersey never should have imposed it in the first place. We will see if the surcharge lapses once and for all in lame duck — the period where members who are leaving make deals to make votes they wouldn’t otherwise.
That will be the true test of fiscal courage and fiscal sanity in the state.
The state budget may not extend the 2.5% tax surcharge on businesses earning over $1 million, but it doesn’t have to because it doesn’t expire until Dec. 31. Unfortunately, after the elections on Nov. 7, there will be plenty of time to extend it during lame duck.
It will be hard for Democrats to let it expire based on the budget deficit they created. Revenue is already below expectations for this fiscal year. Yet, somehow, they expect revenue to increase next fiscal year, but not enough to pay for all of their spending — especially the pork spending that only benefits them politically.
The $1.5 billion budget deficit will need to be made up and the more than $1.2 billion of pork in the state budget will need to be paid for somehow. Democrats will think they need to fix the problem they created with the state budget. The problem is they don’t think they have to fix the problem they created with the state’s economy.
New Jersey is the least desirable place for businesses in the entire nation, routinely ranked as the most expensive and most bureaucratic. That makes our state incredibly uncompetitive, and our economy struggles as a result.
Lowering the corporate business tax to a nationally-competitive rate will make a major difference in our economy. A decade ago, New Jersey and North Carolina changed the way they attracted businesses and their economies went in different directions.
In 2013, North Carolina started gradually cutting its corporate business tax to 2.5%. Every time revenue went up, the tax would lower a proportionate amount. That’s right, they cut their tax and revenue increased — which allowed North Carolina to cut its tax more and get more revenue out of it.
The state received more revenue because after cutting its business tax, it led the nation in economic growth for three years. More jobs, better pay, lower unemployment and all-around economic growth.
The proof is in the pudding. Raising taxes is less effective at helping the economy than cutting taxes. By letting the 2.5% surcharge expire, New Jersey will still be uncompetitive nationwidebecaus
Pennsylvania’s Democratic governors have even agreed that it is necessary and beneficial to lower their corporate tax rate to 4.99% to be the most competitive state in the region.
In today’s world, New Jersey’s convenient location and educated workforce is not the advantage that it used to be. North Carolina attracted all of those businesses because products can be moved more easily with less concern. Education is improving throughout the country, and, as we saw with the pandemic, people can move to another state more readily than ever.
New Jersey has always had the location and the workforce, but our economy has been among the nation’s worst for 22 years because taxes are too high and businesses invest in other states. That leads to our educated workforce leaving for greener pastures.
IRS data released in April showed that New Jersey lost a net $3.8 billion of adjusted gross income in calendar years 2020 and 2021. During that time, a net 25,854 people left New Jersey,half of the former state residents who moved out were between the ages of 26 and 44. That means our prime workforce is leaving the state.
Where are they going? The data shows people nationwide, not only from New Jersey, are moving to lower tax states. About half moved to Florida, Pennsylvania, Texas, Georgia and, you guessed, it North Carolina. Places with more population growth tend to have more economic growth.
We will see if the Democrats let the CBT surcharge expire or if they will extend it after the election during lame duck season for politicians. Letting it go is a good first step. Lowering it to attract more businesses and create more jobs is an even better step.
