The New Jersey Business & Industry Association said today that the state legislature has taken the first step toward comprehensive tax relief and stopping outmigration. Legislation approved this afternoon repeals the Estate Tax by 2018 and allows senior citizens to keep more of their retirement income free of state taxes through a fivefold expansion of the income tax exclusion threshold.
Governor Chris Christie is expected to sign the bills.
“The legislation allows New Jersey to balance infrastructure investment with relief on two particular taxes that are driving businesses, jobs and residents out of New Jersey,” NJBIA President and CEO Michele Siekerka said.
The abolition of the Estate Tax by 2018 means families and business owners would no longer have to choose to move out of the state to avoid paying this death tax, Siekerka said. “Business owners tell me every day that this tax has an effect on their retirement planning and their business succession planning.”
It is important to note that if just 20 percent of those 45 years and older stayed in the state in 2013, instead of leaving, more than half a billion dollars in adjusted gross income would also have stayed in the state flowing through the economy, along with over $300 million in economic activity.
The current Estate Tax exclusion threshold of $675,000 is so low that the value of a middle-class home, coupled with the proceeds of a life insurance policy or 401k, can easily trigger the threshold, she noted.
“For years, financial advisors have been telling their clients that it’s too expensive to retire or die in New Jersey and to relocate to tax-friendlier states,” Siekerka said.
“While New Jersey still has a ways to go to make living here more financially appealing, we have now taken the first important step toward comprehensive reform by addressing two significant reasons that family-owned businesses and retirees are moving out and taking their money and purchasing power with them.”
NJBIA’s 2016 outmigration report found that more than $18 billion in adjusted gross income left the state during the last decade, which has had a significant impact on the state’s economy. During that same period, New Jersey lost $11.4 billion in economic output; $8.4 billion in household spending; 75,000 jobs; and $4 billion in total lost labor income.
The legislation will help change that by increasing the threshold for paying the Estate Tax from $675,000 to $2 million in 2017, and completely eliminating the tax in 2018.
The bills will also gradually increase the state income tax exclusion on retirement income for senior citizens from $15,000 to $75,000 for single taxpayers and from $20,000 to $100,000 for couples filing jointly. The latter reform means seniors will be able to keep five times more of their retirement checks state tax-free by the time the reforms are fully implanted in the 2020 tax year.
The legislation also allow the working poor to keep more of their paychecks by increasing the Earned Income Tax Credit from 30 percent of the federal benefit to 35 percent; provide a $3,000 tax exemption for veterans honorably discharged from the military or National Guard; and reduce the state sales tax from 7 percent to 6.875 percent in 2017 and to 6.625 percent in 2018.
NJBIA thanks Senate President Steve Sweeney and Assembly Speaker Vincent Prieto for their efforts to bring tax relief to New Jersey citizens and businesses.
The NJBIA fact sheet “New Jersey’s Estate Tax: Myth vs. Fact” can be read here.