Here Comes the Sun(set)

The nonpartisan Tax Foundation recently released its annual state rankings of corporate income tax rates, and New Jersey, once again, has the worst by a long shot – a top rate of 11.5%.

This is because the “temporary” 2.5% surcharge imposed on top of New Jersey’s already high 9% Corporation Business Tax was supposed to sunset in 2021, but never did. Instead, the Governor and Legislature extended the surcharge through the end of 2023.

NJBIA is pleased Gov. Phil Murphy has suggested publicly that the surcharge’s long-awaited sunset will really happen this time. Senate Budget Chair Paul Sarlo also said at our recent Public Policy Forum that the CBT surcharge must expire on Dec. 31. And we wholeheartedly agree with Republican lawmakers who support a reduction that occurs even sooner and goes beyond the surcharge to the CBT rate itself.

No matter the timetable, sunsetting the CBT surcharge will draw complaints from progressive groups seemingly committed to ensuring New Jersey remains a national outlier on business taxes. Even though New Jersey still would have the fourth highest, instead of the highest, corporate tax when the surcharge finally sunsets, we expect opposition.

The data is on our side. Making New Jersey taxes more competitive will decelerate outmigration of higher income residents and businesses to other states and make New Jersey more attractive to pro-growth investment that will generate more jobs and higher wages for our residents.

So, when progressive groups ask how corporate tax cuts help middle-class families, we can point them to the multitude of academic resources that suggest workers bear much of the burden of corporate income taxes in the form of lower wages. Additional research has also associated lower corporate tax rates with increased innovative activity, such as patent generation and spending on research and development, which grows an economy.

Other states have already acted to lower corporate taxes, including five last year alone. This includes our neighbor, Pennsylvania, which last year enacted a 1 percentage point cut that took effect Jan. 1, 2023, under a schedule that will reduce its Corporate Net Income (CIN) tax rate to 4.99% in 2031.

Let’s not forget New Jersey job creators have already been hit with a $1 billion unemployment insurance payroll tax increase after enduring the longest state-mandated business shutdowns and COVID restrictions in the nation. And our businesses are excluded from receiving the property tax relief coming in 2023 under the state’s new ANCHOR program, even though they pay nearly half the property taxes in New Jersey.

Sunsetting the New Jersey CBT surcharge on time is an important, overdue step toward making this state more competitive with the rest of the region, and necessary to increase jobs, state revenues and economic growth. The repeal of the CBT surcharge must not be postponed a second time.

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