Downtown Charlotte, N.C.

IRS Tax Return Data Illustrates Outmigration Challenge

Report to Members

NJBIA first documented the outmigration of people and their money from the Garden State in 2016, and a recent update of IRS tax return data shows this trend has continued. Unfortunately, the IRS data is only one harbinger of bad news about New Jersey’s economic future.

According to the newly released IRS data, New Jersey experienced a net loss of nearly $3.2 billion in adjusted gross income (AGI) to other states between 2017 and 2018. This outmigration trend brings New Jersey’s total net loss of AGI to $28.1 billion since 2004-2005.

Here’s how the latest IRS data breaks down: Between 2017 and 2018, New Jersey had an inflow of $8.3 billion in AGI on tax returns filed by new arrivals to the state (both foreign and domestic), but lost a total $11.5 billion in AGI due to the outmigration of former residents. This resulted in a net loss of $3.2 billion in AGI to other states.

Where did all that New Jersey wealth go?

Michele Siekerka

Michele Siekerka, president and CEO, New Jersey Business & Industry Association (NJBIA)

The IRS tax return data shows 56% (or $6.4 billion) of New Jersey’s AGI outflow went to Florida, New York and Pennsylvania. California, Texas and North Carolina were the next largest beneficiaries of the outmigration of New Jersey wealth. Not surprisingly, most of these states have friendlier tax climates. There is no state income tax in Florida and Texas, and the flat income tax rates of 3.07% in Pennsylvania and 5.2% in North Carolina are much lower than New Jersey’s top rate of 10.75%.

The $28.1 billion net loss of AGI from outmigration over 13 years affected state tax revenues, and the state’s ability to fund education, transportation and other essential services without resorting to tax increases on those who are still here. Outmigration of wealth to other states also impacts New Jersey’s future workforce pipeline making it more difficult for businesses to find the employees they need to sustain their operations.

The IRS data isn’t the only research to be concerned about. Forbes recently released its 14th annual “Best States for Business” rankings, and the findings mirrored what NJBIA’s own research has been showing about the challenges of running a business in New Jersey.

Overall, Forbes ranked New Jersey No. 39 for business. On the positive side, Forbes pointed to New Jersey’s highly educated labor force and the quality of life here, but those attributes were undermined by New Jersey’s high cost of doing business and regulatory environment (both scored 49 of 50). Forbes said New Jersey’s business and living costs are among the highest in the US and also pointed out that only Illinois has a worse rating on its general obligation debt.

NJBIA’s research last year on New Jersey’s fiscal crisis documented a significant 382% increase in state debt between 2007 and 2017. We also found that state tax revenues only covered 91% of state expenses during the 15-year period ending in 2017.

Outmigration leads to a loss of tax revenue, which prompts state policymakers to increase tax rates and borrow money to cover operating expenses. But this strategy is shortsighted: It drags down the economy, causing even more outmigration.

The Forbes data shows that three of its top five ranked states for business – North Carolina (No. 1), Texas (No. 2) and Florida (No. 5) – are also among the top outmigration destinations for former New Jersey residents, as tracked by the IRS tax data. Between 2017 and 2018, there was a $2-billion net loss of New Jersey wealth to Florida; a $386-million net loss to Pennsylvania; and a $293.5-million net loss to North Carolina.

As state budget season begins this month, NJBIA will fight any attempt to increase the state’s top income tax rate or enact other mandates that would fuel outmigration and make the state less affordable and less competitive for our businesses and residents.

To access more business news, visit NJB News Now.

Related Articles: