By acting now and eliminating the state’s inheritance tax and its estate tax, New Jersey will instantly become more attractive to entrepreneurs as a place to start and grow a business, creating private sector jobs in the process. The residents who work in these new jobs will contribute to the tax revenue realized by the state, without raising the tax rates on anyone. This is the kind of forward thinking that we need from our elected officials in Trenton, but lawmakers will say: “I’m for the elimination of these taxes, but how will the revenue be replaced to balance the budget?”
The estate tax and inheritance tax produce about $700 million in revenue for Trenton. Clearly, this is a significant number in a budget of about $32 billion. But only two states collect both an estate tax and an inheritance tax: Maryland and New Jersey, and this is not a list we want to be on.
These taxes drain wealth from the economy, hurt job creation and label the Garden State as a high-cost area— or in other words, “take your business and your spending elsewhere.” According to a report from the New Jersey wealth management firm RegentAtlantic Capital, “in 2010 alone, New Jersey lost taxable income of $5.5 billion because residents moved.”
Another study from Boston College’s Center on Wealth and Philanthropy noted that before Governor Chris Christie eliminated and then vetoed New Jersey’s millionaires tax, “approximately $70 billion worth of wealth left the State of New Jersey, as financially well-off individuals and families moved away at a more rapid pace than they were being replaced. The same study showed that the state’s charitable capacity declined by $1.13 billion.”
This is the legacy New Jersey has to overcome and our governor has got the ball rolling, but the next step in bringing New Jersey’s business credibility out of the dark is to eliminate its archaic estate tax and inheritance tax. Other states are already getting the message from employers, investors and economists and are taking appropriate action.
Ohio’s estate tax was repealed effective Jan. 1, 2013. Tennessee’s estate tax will be repealed effective Jan. 1, 2016, and Indiana’s inheritance tax, which was supposed to be phased out by Jan. 1, 2022, has ended up being retroactively repealed to Jan. 1, 2013. This is just a sampling of the wave of smart policy that is sweeping the nation. Shouldn’t New Jersey also be on the right side of this business-friendly revolution?
Detractors are quick to claim this change will only benefit the rich. Quite the contrary; the rich always have more options than those of more modest means. People who are in a position to own two homes are still living in New Jersey much of the year, but spending enough time in another state such as Florida to have it be their official residence—and thereby removing themselves from the death tax liability, and while they are alive, eliminating their obligation to pay personal income tax in New Jersey, thereby reducing the revenue New Jersey receives from that tax. At the same time, their philanthropy— financial support for colleges, hospitals and other institutions—often follows their change in residency.
It’s also a quality-of-life issue. People want to stay in New Jersey to maintain their social circles; see their grandchildren grow and be involved in their lives; keep their doctor and other elements of their support system; and basically enjoy the quality of life that people have in the Garden State.
In my mind, New Jersey must get rid of its inheritance tax and estate tax. The first step is to phase in to an eventual elimination of these taxes by raising the threshold to the federal level. Phasing in the elimination will make the adjustment to lower revenue from this source manageable for our state budget. Other states are already doing the right thing. Now it’s New Jersey’s turn.