NJ’s economic competitiveness still ranks ‘pretty darn low’
One year into Gov. Phil Murphy’s term, and despite hikes in the state’s corporate and marginal income tax rates, New Jersey’s economic competitiveness ranks the same in 2019 as it did a year earlier, in the estimation of a conservative think tank.
The annual "Rich States, Poor States" report by the American Legislative Exchange Council continues to place New Jersey 46th among the 50 states in economic competitiveness.
“Which is pretty darn low,” said Laurie Ehlbeck, the New Jersey state director for the National Federation of Independent Business.
The report examines 15 categories and ranks New Jersey in the bottom 10 for its top income and corporate tax rates, income tax progressivity, property tax burden and average workers’ compensation costs, among other items.
“These things that they’re being graded on are things that prevent small businesses from either starting a business in New Jersey or growing a business,” Ehlbeck said. “Actually, we found that a lot of small business members are leaving the state. It just becomes too unpredictable and too expensive to live and run a business in New Jersey.”
In the report’s dozen years, New Jersey has ranked as low as 48th three times, mostly recently in 2017, and never higher than 39th, in 2013.
“It is chronic,” Ehlbeck said. “And it doesn’t look like it’s going to get better any time soon.”
Because of policies ALEC analysts frown on, like a progressive income tax that applies higher rates on wealthier people, it is unlikely New Jersey would ever rank well in the study. Had the state cut its top income and corporate tax rates by 2 percentage points, rather than raised them, it would still rank 45th.
When the state’s ranking dropped again in 2014, after three years of improvement, the only substantial change in the state’s condition was that the minimum wage went from $7.25 an hour to $8.25.
New Jersey received no credit from ALEC for eliminating its estate tax because it continues to levy an inheritance tax. The study ranks the state low for the quality of its legal system based on an assessment of its handling of tort lawsuits by the U.S. Chamber of Commerce.
“Given the source of the report, I suggest taking its findings with a grain of salt,” said Sheila Reynertson, senior policy analyst for New Jersey Policy Perspective. “ALEC is a well-oiled operation that promotes deregulation and tax policy that solely benefits corporations. And the negative messaging, meant to intimidate legislators into passing bills that improve corporations' profit margins, is getting tiresome.”
Reynertson said New Jersey’s business climate is different from its tax climate. She points to a disproportionate share of Fortune 500 businesses, easy access to the major markets of New York and Philadelphia, a well-educated workforce and a growing population, driven by immigration.
“Yet the tax code is tilted in favor of the wealthy and well-connected. That robs the state of resources to invest in programs proven to be attractive to the business community, like education and transit infrastructure,” said Reynertson, who supports Murphy’s proposal to raise taxes on income between $1 million and $5 million.
Elhbeck said that’s the sort of push that spooks small businesses.
“The fact that they can’t predict future costs, they think that taxes might be higher, are things that hold them back,” Ehlbeck said.