Advocates of the tax hike scheme contend that those with high taxable incomes ought to be hit with the tax increase because, in their words, “They can afford it.” In calling for this tax increase, advocates are seeking money to fuel higher levels of state government spending. This tax increase will hasten business disinvestment in New Jersey and kill jobs.
In claiming that their scheme will not harm New Jersey’s economy, advocates of re-imposing the “millionaire’s tax” have cited a recently published article in the National Tax Journal written by Cristobal Young and Charles Varner. This article reports on research conducted by Young and Varner — at the time, Princeton sociology graduate students — on the impacts of the Jim McGreevey administration’s 2004 tax increase.


In their study, the authors concluded that the 2004 McGreevey tax hike had “a minimal effect” on “the migration of millionaires” from New Jersey. In one of the most widely cited points in the article, the authors state that, in spite of the increased rate of out-migration of millionaires following the tax rate hike, “the (number of) millionaire tax filers increased substantially over this period, rising 43 percent (from about 33,000 in 2002 to about 47,000 in 2006). New Jersey is a producer of millionaires, not an importer.”


What is so remarkable about these two sentences is that, on the very next page, there is a table with the annual figures for “millionaire tax filers”; in 2000, there were 41,358 and, in 2007, there were 27,867. By my calculation, that’s a decrease of about one-third. Further, the data they present show that there was actually a sharp increase in net out-migration per 1,000 New Jersey millionaires beginning in 2004, the year in which the tax hike was imposed. In fact, there was a net out-migration of New Jersey millionaires every year from 2000 to 2007.


Young and Varner also make some important unsupported assumptions in their article, one of which is key to their conclusions regarding taxpayer migration. When commenting on the response of top-rate taxpayers to the 2004 tax hike, the authors claim: “We believe that potential migration effects should happen fairly quickly. When a new tax is imposed, people have an incentive to move as quickly as possible.” What the authors “believe” does not translate into the real world, where it is uncommon to sell or to relocate a closely held business or, depending upon housing market factors, an expensive home, “fairly quickly.”


Young and Varner note some subgroups of millionaires — such as retirees and the very wealthy — were more prone to out-migration from New Jersey in response to the 2004 tax increase than others. However, the authors, together with a Princeton professor, wrote in a 2008 report on migration to and from New Jersey that “people aged 65 and older are the least likely to move” out of state. Young and Varner somehow fail to mention their 2008 finding in their recent National Tax Journal article.
While this was an interesting article, it is not a very convincing defense of the 2004 tax increase.


The tax increase proposal would be harmful to the very sectors of the economy that have been our core strength and should be nurtured. It would also harm thousands of small businesses that pay their business taxes through the gross income tax.


We have an alternative. Over the past few years, the chamber has developed 100 recommendations of private-sector best practices that could help state government reduce costs. Our reports have been embraced by some of our state’s top legislators and policymakers, including the Chris Christie administration. Efforts to reduce government expenses should trump any effort to increase taxes. Our recommendations are the place to start.

Kathleen A. Davis is executive vice president and chief operating officer of Chamber of Commerce Southern New Jersey.


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