Return of NYC commuter tax could aid N.J. employers, say economists

If Manhattan Borough President Scott M. Stringer's proposal to restore an income tax on New Jersey residents who work in New York City comes to pass, employers in the state will have an easier time attracting top talent, employment experts said.

According to James W. Hughes, dean of Rutgers University's Edward J. Bloustein School of Planning and Public Policy, in the short term, the 0.45 percent income tax on noncity residents who work in the five boroughs would not give New Jersey employers a direct economic boost. But Hughes said as commercial leases expire in the next few years, the tax burden on commuters could cause New York City-based employers to shift offices to New Jersey — giving the state a competitive advantage.

"If they really wanted the New Jersey labor force, then employers in New York City would tend to expand in New Jersey," Hughes said. "A lot of firms have already locked into leases, but they could make a potential move when the lease comes to an end."

Hughes said the majority of new jobs created between 2000 and 2010 in New York City were held by New Jersey residents, since the city abolished its 0.45 percent commuter income tax in 1999, and New Jersey increased its income tax rates in 2002.

"Historically, if we go back … through the '80s and '90s, New Jersey had the competitive advantage because it had a much lower cost of doing business and far lower tax rates, so it grew faster than New York City," Hughes said. "But as New Jersey increased its income tax rates … that's when the impact of New York eliminating its (commuter) income tax showed in employment growth. Commuters still had the burden of getting there, but they weren't financially penalized."

According to Joseph Seneca, another Bloustein economist, to remain competitive in recruiting top talent with the commuter income tax, New York City businesses will have to raise their employees' wages, since net incomes decrease as workers are taxed more.

"It puts a wedge between gross and net income, so what will ultimately be affected are wage costs," Seneca said. "I think it's an unfortunate return to the border wars in the past. It doesn't help the competitiveness of the region on a national and international scale … and that will have negative effects on business costs in the long run."

But New Jersey Employers Association President John Sarno said employers will be "hard pressed to raise wages, because it's still a buyer's market … and employers are in the driver's seat."

"The jobs that people are going into New York for don't exist on the Jersey side. We're just not competing for the same jobs, and that's why people are going into the city to work," Sarno said. "I don't think wages would go up, because where else would those people go?"

Sarno also noted that a more realistic real estate shift to offset the reinstated commuter income tax would stem from a greater number of employees spending more time working from home or at existing satellite offices in the state.

"Many commuters are already working from home one or two days a week," Sarno said. "Maybe there will be some individual discussions … but I don't see any significant numbers for satellite offices. New Jersey employers might be able to be more competitive … but there will be no critical mass of people spending more time in New Jersey."