Tax Foundation: Millionaire's tax will curb economic growth
As New Jersey legislators continue to push conflicting versions of a tax cut proposal under the looming June 30 budget deadline, a new study by the nonpartisan Tax Foundation shows a plan by Assembly Democrats to use a so-called "millionaire's tax" to fund a tax credit would hinder economic growth in the state.
"High progressive tax rates disincentivize developing job skills and career advancement, and reduce the number of hours people are willing to work," the report said. "Taxes on high-income filers include business income, and raising taxes on this group would have negative effects on long-term economic growth."
While Gov. Chris Christie twice vetoed attempts to reintroduce a millionaire's tax — actually, an income tax surcharge on the state's wealthiest residents — Democrats have threatened to put the measure on the ballot as an amendment to bypass a veto.
According to Tax Foundation economist Scott Drenkard, regardless of which tax cut plan is adopted, the state "already has a pretty progressive income tax code" weighing on top earners.
"Folks on the left say Christie's plan would disproportionately benefit the rich, but what he was going for was a 10 percent cut across the board," Drenkard said. "In raw terms, his cut is larger for high-income earners, but they're already paying more taxes under the state's progressive tax code."
Drenkard said progressive tax policies, like a millionaire's tax, disproportionately "lean on high-income earners to fund budget shortfalls, which makes for exceptionally volatile revenue streams" and creates problems with funding government services.
"When states tie their revenues to businesses' incomes, their revenues streams are linked to business and economic cycles, which aren't very stable," Drenkard said. "As states face budget shortfalls, moving away from progressive taxes will provide more stable revenue streams."