M E M O R A N D U M
Members of the New Jersey Senate
: Christina M. Renna, Vice President
RE: S-2746 (Sweeney) – Corporation Income Tax Increase
DATE: June 21, 2018
The Chamber of Commerce Southern New Jersey (CCSNJ) appreciates the opportunity to voice its concerns on S-2746 (Sweeney)
, which imposes a surtax on the corporation business tax; decouples certain provisions from the Internal Revenue Code; and, imposes a tax on certain dividends.
Unfortunately, we are unable to provide our thoughts on what is being decoupled from the IRS, presumably as part of the Federal Tax Cuts and Jobs Act, and dividends that will be subject to taxation, as the bill text is unavailable. Our Chamber has consistently stated that tax increases should be an option of last resort, instituted only after all responsible measures to control costs have been identified and implemented. To that end, we produced three reports of our Board Council on Responsible Government Spending which contained 100 recommendations based upon best business practices that could save the state $1 billion.
calls for dramatic increases in the Corporation Business Tax (CBT) and the CCSNJ is very concerned with how this increase will impact our members. S-2746 (Sweeney)
proposes to increase the CBT from its current rate of 9 percent to 10.5 percent or 13 percent of a business’ taxable net income. These increases – 28% and 44.4% respectively – will result in businesses paying an additional $805 million in taxes per year to the State of New Jersey.
The CCSNJ has long argued that raising taxes stifles business’s ability to invest in its employees, equipment, research, products and hinders competitiveness. There are also unforeseen consequences on business of the tax increase called for in this bill, including increased compliance costs to analyze the impacts of these unplanned tax increases as businesses continue to sort out and await IRS direction on implementation of the Federal Tax Cuts and Jobs Act (TCJA). An analysis of the Act conducted by Ernst & Young concluded that New Jersey would experience a 12 percent increase in the corporate tax base as a result of the TCJA.
The Senate President’s two year sunset of this surcharge is heartening. However, the CCSNJ strongly urges an amendment to the bill that will ensure that the surcharge and the $805 million that is generated by business is indeed able to sunset. We recall the Transitional Energy Facilities Assessment (TEFA) that was put into place in 1997, and extended year after year in the State Budget, until it was finally phased out in recent years.
We are very concerned about the timing of this increase on business. On July 1, 2019 two key economic incentive programs – Grow New Jersey and Economic Redevelopment & Growth Grant -- are both due to expire. The sunsetting of these programs that have proven to be so valuable – including in Camden City which is experiencing unprecedented growth – will once again place our state in a vulnerable position in job retention, expansion and attraction. We understand that Pennsylvania’s robust business attraction and retention program – Keystone – was what drove policymakers to make the changes in 2013 to create programs that would make New Jersey competitive to our neighboring states.
In essence, we are giving notice to other states that have more attractive business taxation models, lesser regulatory burdens and lower property taxes to make it worth it for businesses to move out of New Jersey. Technology has made physical location less important.
The Tax Foundation said it best: “Taxes matter to business. Business taxes affect business decisions, job creation and retention, plant location, competitiveness, the transparency of the tax system, and the long-term health of a state’s economy. Most importantly, taxes diminish profits. If taxes take a larger portion of profits, that cost is passed along to either consumers (through higher prices), employees (through lower wages or fewer jobs), or shareholders (through lower dividends or share value). Thus, a state with lower tax costs will be more attractive to business investment, and more likely to experience economic growth.”
Understanding the need to generate this revenue in the coming years, we recommend that in the two years this tax increase is in effect the Legislature implement recommendations made by several commissions on reducing the cost association with public employee health and pension benefits. We believe that $805 million in savings can be identified in these reports.
The CCSNJ has long encouraged government to seek creative ways to “live within its means” and control or reduce spending, rather than increasing taxes in an already tax-burdened state. Our position remains and we advocate that the Legislature take this approach in the FY2019 budget. In conclusion, the CCSNJ looks forward to continuing to review the details of the Legislature’s budget and encourages the Legislature and Governor to think creatively about new avenues for cost savings as the FY2019 budget negotiations continue.