New Jersey policymakers must change the state’s estate and inheritance taxes, if the state hopes to remain competitive regionally and nationally, according to a new report by the New Jersey Policy Research Organization (NJPRO), the research affiliate of the New Jersey Business & Industry Association (NJBIA).
Part of NJPRO’s Facts for Discussion series, “New Jersey: An Outlier in Death,” examines two of New Jersey’s oldest taxes and shows how they are hurting the state economy. New Jersey’s estate and inheritance taxes, established in 1934 and 1892 respectively, directly affect small business owners and wealthy residents, contributing to New Jersey’s outflow of wealth to other states.
“These taxes aren’t just old, they are major contributors to the outflow of wealth in New Jersey because both of them directly affect small business owners,” said NJPRO Executive Director Sara Bluhm.
“Perhaps nowhere is New Jersey more of an outlier,” Bluhm said. “Most states do not have either death tax, 14 states have only an estate tax and seven have only an inheritance tax. New Jersey is one of only two states that have both.”
NJPRO explains that eliminating one of the two taxes will improve New Jersey’s economic climate for residents and for small business. Easing the tax burden will also encourage families to pass their businesses from one generation to another making succession planning less worrisome. With the estate and inheritance taxes in place, many business owners flee the state to locations with smaller tax obligations.
According to the report, “Considering its outlier status, New Jersey policymakers should consider the elimination of one of the two death taxes since 48 other states have eliminated at least one… or increase the thresholds incrementally to match federal policy.”
Recently, there has been a movement by the federal government and many states to either remove or update their “death taxes.” In the past four years, five states – Ohio, Indiana, Kansas, North Carolina, and Oklahoma – all voted to phase out the taxes. In the northeast, Pennsylvania moved to exempt certain businesses from the inheritance tax, while New York voted to gradually increase its estate tax to match the federal threshold.
New Jersey’s inheritance tax currently taxes property with an aggregate value at $500 or more with a tax rate ranging from 11 percent to 16 percent. Fortunately, spouses, parents and direct descendants are exempted. New Jersey’s estate tax is also a sliding scale with 17 different tax brackets and while surviving spouses are exempted, both death taxes are fairly complex to comply with.
The report is also realistic about the current fiscal situation. “While it is understood that the State is still experiencing revenue problems and that additional reforms may not be possible at this time, this is a discussion that needs to be had.”
Policymakers must contemplate New Jersey’s competitiveness as New Jersey strives to not only retain jobs and wealth, but incentivize job creation and investment in the state. Examining archaic tax policies, like the death taxes, is a very good start.
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