Last week the New Jersey Chamber of Commerce and the Community Foundation of New Jersey released a report they commissioned from the Center on Wealth and Philanthropy at Boston College. This report ties the wealth of households to migration patterns in and out of the state.
It finds between 2004 and 2008, there was a moderate increase in the number of wealthy households moving out of New Jersey and a decline in the number moving in. The net effect of this, according to the report, is a substantial decrease in household wealth and charitable capacity.
The business community and various politicians are using this study to make the claim–yet again–that this exodus of wealth is a reaction to taxes such as New Jersey’s millionaires’ tax. They make this claim despite the fact that the analysis doesn’t include taxes as a variable and the report doesn’t mention them–except to say that only 6 percent of the wealthy people moving out have incomes over $500,000 (the starting point of New Jersey’s highest tax bracket).
The report looks at wealth (real estate, stocks, bonds, 401ks and vehicles) because it says investable assets are a more important determinant of charitable giving than income. But the study is being used as proof that there is a rush of wealth AND income out of New Jersey.
To the contrary, the number of high income households in the state has increased sharply during this period.
Actual tax return data from the New Jersey Department of the Treasury confirm that the number of tax returns with incomes of $500,000 and above has been growing. The current recession may tell a different story in more recent years, but in 2007 (the most recent data available), 48,500 tax returns were filed with incomes of $500,000 or more. This is nearly twice the number (25,500) filed in 2002. In each year since 2002, the number of these high income returns has grown. Their collective income in 2007 was $76.9 billion and they paid $4.6 billion in taxes to the state. Although their income was taxed at a top marginal rate of 8.97 percent, they paid an effective rate of 6 percent ($4.6 billion/$76.9 billion).
This report only looked at a ten year period–and that period just happened to be the decade when New Jersey increased income taxes on the state’s wealthiest residents. But what if the report looked at a twenty year period? It’s possible the data would show the same trend–younger people moving in have higher incomes and less wealth; older people moving out have more wealth and lower annual incomes.
What this study might suggest is that New Jersey doesn’t import wealthy people; it creates them. The report finds that the people moving to New Jersey are younger, earn higher incomes, and are more frequently employed than the wealthy people leaving. It makes perfect sense that younger, mid-career people would have less wealth because their retirement accounts would be small and their houses are probably mortgaged.
In contrast, the wealthy people leaving tend to be older, are more commonly retired or widowed and have more wealth. It’s likely that these older retired people are taking with them retirement and investment accounts and the cashed out untaxed capital gains from houses that have appreciated in value many times over the original purchase price.
New Jersey is, quite frankly, a rich state. We all know that.
In 2007, we had the second highest median household income in the country (after Maryland). We ranked third after the District of Columbia and Connecticut in per capita personal income. And in the same year, New Jersey and Maryland tied as the states having the highest percentage of households (7.1 percent) with at least $1 million in assets. These factors are unlikely to change overnight.
Understanding the state budget and its underpinnings are critical to any policy decision that will be made in this state. State budget decisions affect the lives of every one of the 8.7 million people living in New Jersey. They influence how much we pay in income and property taxes; the condition of our schools and healthcare facilities; the access we have to job opportunities in the public and private sectors; and the sense of security we have in our communities.
Starting next week, NJPP’s Monday Minute will begin a series devoted to issues surrounding the New Jersey state budget. Our plan is to start with a discussion of the state’s current and long term structural deficit; the taxes that support state and local spending; and simple analyses of the programs that these taxes support. Each week we will focus on something new.