Most CPAs Are Telling Clients to Relocate out of New Jersey — Here’s How We Can Change That
By Ralph Albert Thomas, CPA (DC), CGMA, CEO and executive director, New Jersey Society of Certified Public Accountants –
April 30, 2019
Certified public accountants often hear objections about New Jersey’s high taxes from clients who are looking to leave New Jersey — and this past tax season was no exception, according to members of the New Jersey Society of Certified Public Accountants (NJCPA). A new Rutgers-Eagleton poll done in collaboration with the New Jersey Business & Industry Association (NJBIA) serves to underscore why.
The overwhelming majority of New Jersey residents polled — 82 percent — said they are overburdened by taxes and are not getting their money’s worth in services. Similarly, 81 percent of respondents said they were dissatisfied with the way state leaders are addressing New Jersey’s affordability challenges.
Against this backdrop of taxpayer angst about some of the highest personal and business taxes in the nation, Gov. Phil Murphy’s FY 2020 budget proposes more tax increases on top of the $1.6 billion in tax hikes enacted last year. He is proposing a top 10.75-percent marginal tax rate affecting income over $1 million. If enacted, more New Jersey residents and small businesses that flow income through their personal returns would be taxed at rates well above New York State’s 8.82 percent and Pennsylvania’s flat 3.07-percent rate.
It is no wonder a recent NJCPA member survey found that 75 percent of CPAs have advised some clients to relocate their homes or businesses out of New Jersey in order reduce their tax burden.
New Jersey must break its destructive tax-and-spend habit by addressing the structural imbalances in its budget in order to put the state on sounder financial footing.
A recent NJBIA analysis of 10 years’ worth of audited state revenues, expenses and debt found state debt increased 382 percent from 2007 to 2017, and state spending increases outpaced revenue 45 percent to 23 percent. New Jersey’s combined net pension liability and post-employment benefit obligation totals $151.6 billion, which is four times the size of the annual state budget.
Without changes to the pension and benefit structure, costs will rise from $6.6 billion a year to about $11 billion annually in 2023, according to state Treasury projections and other health benefit reports. That means 27 percent of the state budget would go to support pensions and benefits, leaving less money for essential state services and making it more likely the state will resort to additional tax increases to make up the difference.
The NJCPA strongly endorsed the pension and benefit reforms spelled out by the New Jersey Economic and Fiscal Policy Workgroup it its Path to Progress report last year. These include shifting from the current defined benefit pension system to a more sustainable hybrid system that combines the best elements of both a defined benefit and defined contribution system.
In May, the state treasurer will brief legislative budget committees on the administration’s updated revenue projections for the current fiscal year that ends June 30. Governor Murphy had been counting on 7.7-percent revenue growth to balance the FY 2019 budget, however through March the total growth rate of all major revenue sources has been only 4.74 percent.
In short, New Jersey remains on a counterproductive path of spending more money than it has and relying on tax increases to make up the difference. The changes to the income tax bracket in the proposed FY 2020 budget will further undermine the state’s ability to grow and attract businesses.
NJCPA supports policies that produce a fair tax system and economic growth so that companies and residents will stay in New Jersey and thrive. NJCPA stands ready to serve as a resource to the Governor, his administration and the Legislature to develop policies that foster economic growth.