NJBIA Analyzes the Cost of Doing Business by State 

In Action on Competitiveness

By Nicole M. Sandelier, NJBIA Policy Analyst On Apr 30, 2018

If you own a business in New Jersey, you already know how expensive this state is. You also know the challenges those expenses present when competing against companies in neighboring states that have lower operating costs. 

Non-business owners, however, may not appreciate the cumulative impact of New Jersey’s taxes and policies. To illustrate the problem, NJBIA has ranked seven nearby states on six different business costs—minimum wage rate, top income tax rate, top corporate tax rate, sales tax rate, property taxes as a percentage of home value, and the top unemployment tax rate. We then compared New Jersey with Connecticut, Delaware, Maryland, Massachusetts, New York and Pennsylvania.

Cumulative Costs

Policymakers tend to look at the costs of a piece of legislation individually. When they are added together, however, the cumulative impact of these costs puts New Jersey at a decisive competitive disadvantage. We ranked the states 1 through 7 on each cost and added up the rankings for an overall business climate score. The lower the number, the better the business climate. Looking at the costs together paints a more complete picture. A state could rank poorly in one category but be “pro-business” in others. For example, Pennsylvania’s top corporate tax rate is the highest (9.99 percent) in the region; however, Pennsylvania also has the lowest minimum wage rate ($7.25 per hour) and the lowest income tax rate (3.07 percent). 

New Jersey Is Least Competitive

New Jersey’s overall regional business climate score is 31, five points more than the second highest states. New Jersey ranks 7th, or last, in three categories and 6th in one. The areas where New Jersey is not at the bottom are the minimum wage rate (3rd) and the top unemployment rate (1st). In addition to notoriously high property taxes, New Jersey has the highest sales tax (6.625 percent) and top income tax rate (8.97 percent). What’s more, things could get worse. The governor has proposed increasing the top income tax rate for income over $1 million and raising the sales tax back to 7 percent. He also called for an increase in the minimum wage to $15.

Border States Are More Competitive

Delaware has the best regional score at 17, followed closely by Maryland at 18. Pennsylvania is 3rd with a score of 23 and New York is 4th with a score of 24. Pennsylvania and New York are the biggest outmigration states: Of all the people who leave New Jersey, more go to Pennsylvania and New York than anywhere else. This analysis paints a clear picture of what businesses are up against. New Jersey is ranked last or next to last in most categories. That means businesses in New Jersey have to find a way to compete with regional businesses on price despite having significantly higher government-imposed costs.

 

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