It’s Tough To Stay A Millionaire in NJ
Tomorrow, the New Jersey Senate and Assembly are scheduled to consider bill to increase the income tax on the state’s roughly 16,000 millionaires. Democrats say the $800 million generated through the increase would help fund property tax relief for the middle class. A new study by the Tax Foundation suggests taxing the rich is not a good idea.
According to the latest data from the IRS there were roughly 268,000 tax returns reporting more than $1 million in income in 2010, a slight increase from the previous year. The impact of the recession, however, can be seen dramatically going back a few more years. The number of millionaire tax returns filed plummeted 40% between 2007 and 2009, according to the new analysis by the Tax Foundation.
Tax Foundation President Scott A. Hodge says, “There is a serious ongoing political debate over the tax rates paid by millionaires. Neither side of this debate, however, has made any attempt to provide a basic profile of who these taxpayers are. When we look beyond the basic financial statistics we learn that these taxpayers are typically married – and most of them are two-earner couples – they are highly educated, many are business owners, and nearly half are over the age of 55.”
Hodge explains that as a group, millionaires consistently bear a substantial share of the overall income tax burden relative to their incomes and pay at a high average effective tax rate. Throughout the last ten years, for example, the share of income taxes paid by millionaires has been roughly twice their share of income. In 2010 millionaires had an effective tax rate of 25%, while the average for all U.S. filers was 11%. Individuals earning between $50,000 and $75,000 had an average effective rate of 7%.
Evidence shows that millionaires are an ever-changing group of people who tend to share some common but desirable traits according to Hodge. He thinks policies aimed at making America more equal by targeting “the rich” are likely to be ineffective, not only because they are aiming at a moving target, but also because so many of these common traits stand outside the bounds of tax policy.
“While the political discourse frequently treats millionaires as a monolithic group, the data indicates that millionaire status appears to be fleeting or episodic,” explains Hodge. “People rarely report million-dollar incomes consistently year after year because many of them only become single-year millionaires as the result of a onetime event such as the sale of a business or stock. It is often the case that taxpayers who report $1 million or more in income in one year are not the same people who filed million-dollar returns in previous years.”
If the New Jersey legislature is successful in passing a millionaires’ tax hike for the third consecutive year, Governor Chris Christie vows to veto it for the third time in three years.