Raising state taxes on the wealthy New Jerseyans does not cause them to leave the state and results in substantial new revenue, according to a new report released Thursday by Trenton-based liberal think tank New Jersey Policy Perspective.
The findings bust what Policy Perspective staff describes as the common myth advanced by opponents of tax increases. Americans move from state to state for a variety of reasons, but tax rates rarely factor into such decisions, the report declares.
Policy Perspective is a proponent of the Democratic proposal to hike state income tax rates on New Jerseyans who earn more than $1 million annually. Gov. Chris Christie has vetoed the so-called “millionaire’s tax.’’ The governor has stated that a tax hike on the wealthy would drive them out of New Jersey.
"This claim is false,” said Robert Tannenwald, co-author of the report and a senior fellow at the Center on Budget and Policy Priorities, a Washington, D.C.-based nonpartisan, nonprofit policy research organization that published the new report.
"The effects of taxes on migration are, at most, small – so small that states that raise income taxes on the wealthiest households will see a substantial net gain in revenue," Tannenwald said.
In the study, sociologists at Stanford University looked at the effect of New Jersey's 2004 tax increase on people making more than $500,000 per year. They found that while the number of people leaving the state in this income group increased very slightly after the tax increase went into effect, the number was insignificant because people unaffected by the new tax were moving at a similar rate. The end result was that the new tax rate produced a large increase in revenue for the state without prompting people to leave.
The report also examines the Boston College study commissioned by the New Jersey Chamber of Commerce last year. This study has been used as proof by opponents of taxes that high-income people are leaving New Jersey because of the state's income tax structure, when in fact the author acknowledged no tax impact.
The CBPP report reiterates that most of the people examined in this study had incomes of less than $500,000 and thus were not subject to the state's highest marginal income tax rates.
The report cites numerous examples of research debunking the migration myth and, through case studies, shows how misinformation about the impact of taxes on migration can influence policymakers and the media. Those who support the migration myth often wrongly assume a cause and effect relationship, promote irrelevant findings, and inaccurately measure migration, the report found.
"As we focus on creating new jobs and getting our economy back on track, it's clear residents are not running away from our state if we take a balanced approach that includes new revenues," NJPP President Deborah Howlett said. "False claims like this shouldn't deter policymakers from making the right choices for New Jersey."
Few Americans move between states, according to the report. And the little interstate-migration that does occur is more frequently due to job opportunities and housing prices than tax rates. Specifically, the report illustrates that housing costs may have a significantly larger impact on Americans' finances than tax levels.
"Investing in our state's future is more important than ever right now and that's why it's important not to rely on flawed information about the effect of taxes on residents' decisions about where to live," Howlett said. "Failing to raise the resources needed to maintain strong schools and universities, safe communities, and quality roads and bridges will hurt us now and in the long run."
The center's full report can be found here.
– TOM HESTER SR., NEWJERSEYNEWSROOM.COM