State Income Tax Hits Double Digits
Posted July 17, 2009

As the 2008-2009 fiscal year came to a close, the non-partisan Tax Foundation took stock of state tax landscapes across the country. And for New Jersey, the news wasn't good.

For 2009-2010 year, New Jersey became one of only four states whose top income tax rate exceeds 10 percent, with our highest rates now standing at 10.75 percent for filers earning over $1,000,000 and 10.25 percent for those earning more than $500,000. Additionally, the tax rate for those earning over $400,000 rose from the previous top bracket of 6.37 percent to 8 percent (this excludes local income taxes). 

While some hold taxing the "wealthy" is good policy, history shows otherwise. According to Tax Foundation Staff Economist Kail Padgitt, "So-called 'millionaires' taxes' on high-income people are politically safe targets for politicians to tap in a recession.. [but t]he problem with these kinds of taxes, as evidenced by California, is that soaring revenues in good economic times encourage excessive spending, which leads to an inevitable budget shortfall during downturns."

Indeed, the economic downturn has already had an effect on millionaires in New Jersey, with the number of millionaire households in the state dropping by more than 20,000 this year, falling from 6.89 percent of households in 2008 to 6.22 percent in 2009, a decrease of 9.7 percent (compare this to a national decrease rate of 8.7 percent).

Fellow Tax Foundation Staff Economist Mark Robyn noted, "States shouldn't assume that revenue surges in good times will continue indefinitely, and the more reliant a state is on high-income earners, the bigger hit that state will sustain when those revenue surges eventually end." He added, "Legislators should adopt wise spending and tax policies that recognize and prepare their states for these economic realities."

Unfortunately, New Jersey has become the poster child for instituting band-aid taxation policies that may raise revenue in the short term but do nothing to correct longstanding structural deficiencies that continue to burden New Jersey families with unaffordable taxes and fees.

In addition to hiking income taxes, New Jersey also imposed a tax increase on cigarettes, which are now taxed at $2.70, and on alcoholic beverages, with spirits now being taxed at $5.50 per gallon.

While we certainly do not advocate either smoking or drinking, the principle of attaching taxes and fees to consumer products does nothing to cure our state's ailing fiscal health. And while today the products may be alcohol and cigarettes, tomorrow, taxes may appear on any number of products consumers use. In reality, is any tax off limits?

New Jersey families have been burdened enough by rising income taxes, rising fees, rising tolls, etc. It's time for the people to say enough is enough and to elect to office individuals - regardless of party - who will lead responsibly instead of continuing Trenton's record of reckless spending and debt while expecting the people of New Jersey to foot the bill.

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