In early 2015, David Tepper packed his bags. The renowned owner and founder of the hedge fund Appaloosa Management left New Jersey for Florida’s warmer and more-tax-friendly climate. He took a good number of his firm’s employees with him.
If you don’t work for Tepper, you may think, “Why should I care?” But the fact is that Tepper, with his estimated net worth of more than $11 billion, was a great source of tax income for the Garden State. His personal and business tax payments helped support our public schools, municipality maintenance, roads—you name it. When wealthy business owners flee our state, we all lose out.
What happens when companies leave New Jersey?
Tepper isn’t the only businessperson who knows that New Jersey isn’t an ideal headquarters location for a growing company. Established firms are leaving the state, but new companies aren’t exactly clamoring to replace them. From 2004-2013, only 3,880 net-new businesses established themselves here (see chart below).
Source: Bureau of Labor Statistics website www.bls.gov
We discuss the many reasons companies are leaving the Garden State in our white paper, “Closed for Business: Is New Jersey Pushing Out Small- and Medium-Sized Companies?” The end result is that businesses moving out of—and also not choosing to newly establish themselves in—New Jersey is a big problem due to a number of reasons:
Lost Tax Revenue
New Jersey depends on personal income tax—which comes from both business owners and their employees—for more than 45% of the state’s revenues. It’s the state’s number-one income stream. Fewer local businesses and workers = less personal income tax from wealthy business owners and highly paid workers = less money to fund state services.
Statewide “Brain Drain”
According to a recent American Community Survey, millennials are the largest population group leaving New Jersey and moving to other states. The loss of individuals in this group of 18- to 34-year-olds has wide-ranging causes and effects, including the following:
– High New Jersey home prices and rapidly increasing property taxes are discouraging. Millennials have a hard time finding reasonably priced, safe homes in desirable New Jersey communities. This makes it easier for hiring companies to lure them out of state.
– We probably paid for millennials’ educations, but we aren’t getting any payback. Young people who benefitted from New Jersey’s top-notch public education system are now taking that knowledge to other states. They’re getting high-paying jobs and becoming taxpayers elsewhere.
Decrease in charitable donations. We see a direct link between loss of New Jersey businesses and less donations to nonprofits. For one thing, well-heeled business owners are some of the state’s most generous donors.
Closely connected to that is the State’s lack of a tax deduction for charitable gifts. Residents have no state-sponsored financial incentive to give money to charity. That, in turn, cuts available, nonprofit services for at-risk populations and increases the responsibility (and cost) to State agencies instead.
Rolling out the Garden State’s Welcome Mat: How to Make New Jersey Business Friendly
We outline a number of concrete fixes for New Jersey’s business outmigration and tax crisis in our downloadable white paper, “Closed for Business: Is New Jersey Pushing Out Small- and Medium-Sized Companies?” Among the changes we recommend in the paper are the following:
• Eliminate New Jersey’s inheritance tax (a follow up to the estate tax repeal).
• Cut corporate state tax rates so they are more competitive with nearby states.
• Slow down property tax increases.
• Eliminate state taxes on S-Corporations.
• Offer a state tax deduction for charitable donations.
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