The FY 2018 budget will no doubt be remembered for the government shutdown during the Fourth of July weekend. That’s unfortunate, as the spending plan has a lot going for it, including no new taxes and continuing a number of key provisions for the business community.
The budget itself was non-controversial; disputes over other issues held up its passage. That shows just how far New Jersey has come in eight years. Fiscal discipline and tax relief have been the mantra NJBIA has repeated year-in and year-out, and while none of the successes on this front have been dramatic by themselves, together they have taken positive steps in helping to improve New Jersey’s tax climate. Eight years since the budget crisis of 2009, New Jersey’s finances are more stable and its tax burden on business significantly reduced.
Consider that in this time span, significant tax reforms that help both large and small business were enacted. The single-sales-factor reform provides tax relief to larger, corporate taxpayers that invest in New Jersey with both facilities and jobs. This change eliminated what many considered to be an investment tax. Additionally, high-energy users were paying approximately 4 percent of their electric bill under TEFA, a “temporary” tax that had long ago become permanent. The TEFA tax was completely eliminated in 2014.
Small businesses have also benefited from a number of changes in the tax laws for LLCs, S-corporations and partnerships. Eight years ago, income for small businesses was kept in separate silos for different business categories. During tax time, losses in one silo could not be deducted from the income of other business entities even though they were owned by the same company. Likewise, small businesses were not permitted to carry forward net losses from one year to the next.
Now, small businesses are able to combine losses and income from certain business categories, allowing them to report a taxable income that more accurately reflects their total revenues. They can also carry forward net losses for 20 years, a tax benefit that has long been available to C-corporations. Other provisions include a 25 percent cut in S-Corp Minimum Tax and the complete elimination of the estate tax on Jan. 1.
Additional changes include the recent increases in the income tax exclusion for pension and retirement income, and the earned income tax credit. All told, these reforms have made New Jersey’s tax climate more competitive with neighboring states like Pennsylvania and New York, the top outmigration states for New Jersey wealth.
On the spending side, the budget continues the state’s commitment to workforce development. Among other things, it provides $3 million for the County Vocational School District Partnership Grant Program. NJBIA first advocated for this grant program in FY 2015 because it encourages vocational schools to partner with local high schools and county colleges to create career programs in existing facilities.
Ultimately, this will expand access to quality career and technical education programs, give more students the skills needed to launch a successful career and ensure that employers will have a pipeline of skilled and trained employees for the future.
Finding qualified employees is especially important for New Jersey. A highly skilled and educated workforce is one of the biggest competitive advantages New Jersey has over other states, and maintaining it is critical to the long-term success of our economy.
New Jersey remains an expensive state to do business in, and a final resolution to the shortage of skilled labor will take a prolonged effort. However, a number of positive reforms have the state headed in the right direction. Let’s keep it going that way.