Estate tax cut already changing CPAs’ advice to flee NJ
Three-quarters of certified public accountants in New Jersey have advised clients to leave the state because of the estate and inheritance taxes, according to the head of the New Jersey Society of CPAs.
That tax is ending – and so is the advice, even before the law is off the books, said Ralph Albert Thomas, the CPA group’s chief executive officer and executive director.
“Not only our members, but I know estate attorneys have been sending out correspondence about, look, they need to reconvene with their clients to relook at what they proposed,” Thomas said.
The survey found 83 percent of respondents felt estate and inheritance taxes had prompted clients to leave New Jersey. A follow-up survey is planned for the spring, to see how much the advice has changed.
The estate tax is paid on approximately 3,500 estates annually, around 5 percent of the approximately 70,000 deaths in the state each year.
Currently, New Jersey’s estate tax threshold is $675,000. The full value of any estates worth more than that is taxed. That will be changed to a $2 million exclusion at the start of 2017 – meaning, for instance, that an estate worth $2.5 million would be taxed on the $500,000 over the excluded amount.
The tax is then eliminated entirely at the start of 2018.
The inheritance tax isn’t being altered. Thomas said there was a limit to how much could be changed at once.
“I know it’s something that bothers people, but you have to do this thing in parts, in pieces. You know, we didn’t get into the situation that we’re in overnight,” Thomas said. “I don’t think you can do too much in one fell swoop that’s going to be a magic bullet. It’s going to be a process, I think.”
A group of Democrats had opposed the elimination of the estate tax, arguing it’s a giveaway to the wealthy and that, at most, the threshold at which it applies should be raised, leaving it in place for the wealthiest estates. Raising the threshold to the federal level would have exempted all but around 100 estates a year.
Assemblyman John Wisniewski, D-Middlesex, said the tax cuts put the state “on a track for disaster.” Overall, Wisniewski said, the tax cuts reduce state revenues by $12.3 billion over the next decade.
“We can’t afford it. We don’t have $12 billion lying around,” Wisniewski said.
It’s projected that in 2022, when the various tax cuts are fully in place, the estate tax elimination will account for about 40 percent of the reduced revenue. Wisniewski says it will amount to around $4.5 billion over 10 years.
In this year’s state budget, which expires in June, the impact is marginal – only around $16 million, with the state still collecting $448 million. It increases to $116 million in the 2018 budget, $320 million in 2019, then grows gradually with the value of estates to a projected $562 million by 2022.
Sen. Nia Gill, D-Essex, said it’s no coincidence that the tax stays on the books until Christie’s term is over.
“By eliminating the estate tax in 2018, and not right away, it is an admission by the governor that he needs the estate tax so that he can balance the budget,” Gill said.
“So he closes out the lights in the front office, and he makes sure to close out the lights on us,” Gill said.
In the negotiations over the tax cuts, which were paired with the hike in the gas tax, Christie insisted on a faster phase-out of the estate tax than in the original compromise struck by Democratic and Republicans lawmakers, which wouldn’t have ended the tax until 2020.
Even before the tax is phased out, Sen. Ronald Rice, D-Essex, is already broaching the idea of restoring it.
“To me, it’s temporary relief. I’ve been here long enough to know this stuff is not fixed in stone,” Rice said. “I can tell you this: Someone’s going to have to take another look at this in the future, the Legislature and the governor. Some of this stuff may have to be put back.”
Sen. Steve Oroho, R-Sussex, said the change will help the state by improving its economy and retaining residents. He said annual state revenues would be around $3 billion higher if the state’s economy was growing at the national average.
“We need to have a major, major tax restructuring in New Jersey,” Oroho said.
Business groups are already focusing on the next potential tax cut. Thomas said help for small business is likely to be his organization’s focus.
“If you think about it, just thinking off the cuff, 300,000 small businesses – if only 10 percent of them hired one other person, that would be 30,000 new jobs,” Thomas said.
Over the last year, New Jersey’s economy has added, 53,4000 jobs, but only 11,100 of those have been added over the last nine months.