The following editorial by Senator Steven Oroho on the need to phase out the state’s estate tax to protect all New Jersey residents was published in The Record on April 24, 2016:
Sen. Steven Oroho says his effort to phase out the state’s estate tax isn’t about protecting the wealthy, but about protecting all of New Jersey. (SenateNJ.com)
New Jersey residents shoulder the third-greatest state and local tax burden in the nation, according to the Tax Foundation.
We have the highest property and business taxes, and sales and income taxes that are among the highest. The Garden State is also one of just two states to impose both an estate tax and an inheritance tax on its residents, commonly referred to as “death taxes.”
Not surprisingly, studies continually show New Jersey leading the nation in the outmigration of residents to other states – usually those with no income taxes or lower rates, smaller property tax bills and better tax structures for estate planning purposes.
One recent survey by the New Jersey Business & Industry Association found that two-thirds of the state’s business owners do not plan to keep New Jersey as their domicile in retirement, and a similar percentage said our estate taxes are considered when making business decisions.
Those survey results are reinforced by IRS data, which show a net outflow of more than $18 billion in adjusted gross income from New Jersey to other states from 2004 to 2013, the last 10-year period for which data are available.
There was not a single year in that decade when New Jersey gained taxable income, and the net losses are increasing.
One result of this flight of people and income from New Jersey is the loss of billions of dollars of state tax revenues that is no longer available to pay for critical public services, including education, health care programs and infrastructure projects.
Our charitable organizations have been impacted as well. They have lost hundreds of millions in donations each year as benefactors have redirected their giving to non-profits in their new home states to help demonstrate to tax authorities that New Jersey is no longer their principal domicile.
Competing with other states
The only way to turn this troubling tide is to make New Jersey’s expensive tax structure more competitive with less costly states.
Of the 14 states that tax estates, New Jersey’s exemption of $675,000 is by far the lowest. Estates worth $727,000, just above that threshold, would pay $19,240 in state taxes, and this amount would increase with every additional dollar.
With all of one’s assets subject to the estate tax, including homes, furnishings, property, cars, retirement savings and investments, it is not difficult for many New Jerseyans to find themselves above the $675,000 threshold as they near retirement.
In fact, owning a nice home in many New Jersey towns is enough, by itself, to make the estates of many residents taxable.
Take middle-class Paramus, for example, where the average home for sale is listed at nearly $800,000, according to Trulia.
Children inheriting a family home there after the deaths of their parents would owe more than $20,000 in estate taxes just on the value of the home, even if there are no other cash assets available to pay that tax bill.
In the midst of a family tragedy, those children would have to sell the home they grew up in just to pay this tax that no other state would make them pay.
Considering that 36 states do not have any estate tax, and the much higher exemption of $5.43 million is for the federal estate tax only, New Jersey residents with normal-sized estates have options to protect their assets.
Based on numerous discussions with my colleagues in the accounting and financial planning professions, it’s clear that New Jersey residents are aware of those options and increasingly are choosing to relocate to reduce or eliminate their tax liabilities.
It’s also clear that the resulting outmigration is not simply of the wealthy. Middle-class families and retirees are leaving as well, and states with no estate tax are especially attractive.
Virtually everyone who lives in New Jersey knows of former neighbors and co-workers who have left, and many who remain have plans to exit at some point in the future.
As more of those families and retirees relocate to more affordable states, New Jersey’s revenue streams and the many state programs they fund will be stressed to an even greater extent.
This will impact us all through a continued reduction of the state’s capacity to provide services, and some will likely demand even higher taxes on others to cover the losses, which would only quicken the flight.
The non-profit charitable organizations that serve as a safety net for so many in our communities will feel an even greater bite as well.
It should be evident that estate tax reform isn’t about protecting the wealthy, but about protecting all of New Jersey.
That’s why I joined with Sen. Paul Sarlo, D-Wood-Ridge, chairman of the Senate Budget and Appropriations Committee, to sponsor a bill (S-1728) to phase out New Jersey’s estate tax entirely over five years.
Our effort would enact tax fairness, make the state more competitive, attract businesses and capital, grow jobs and keep generations of families together here in New Jersey.
With legislative leaders of both parties and Governor Christie all saying that it’s time to address estate tax reform, we have a rare opportunity that we cannot afford to let pass.
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