While high-income earners represent less than 6 percent of New Jersey taxpayers, they account for nearly 57 percent of all federal personal income taxes paid from the state, compared to less than 50 percent nationally, according to a study by the nonpartisan Tax Foundation.
That means if President Barack Obama allows the George Bush-era tax cuts to expire for those earning more than $200,000 a year, high earners in the state will see their tax burden increase disproportionately compared to the rest of the country, taking more consumer buying power out of the state and hurting New Jersey's economy, a tax expert said.
"We have more people in the top tax brackets than any other state, except Washington, D.C., so if the Bush tax cuts expire, it suggests New Jersey is going to be one of the hardest-hit states," said James W. Hughes, dean of Rutgers University's Bloustein School of Planning and Public Policy. "If you have to send $1,000 more to Washington each year, unless you're super, super rich, you're going to say, 'I can't eat out this week,' and 'I can't spend money on clothes.' And with consumer spending making up close to 70 percent of the economy, that impact will ripple throughout the economy, not just in retail, but in various services."
Congressional Republicans have proposed extending all of the income and estate tax cuts enacted in 2001 and 2003, but not the expansions for lower-income families that were included in the 2009 federal stimulus. Obama plans to extend the 2009 expansions, as well as the Bush-era cuts, but only for the first $250,000 of a family's annual earnings, or the first $200,000 of an individual's earnings. All tax cut provisions are set to expire at the end of the year, unless Congress acts.
According to the report, while millionaires account for 0.32 percent of New Jersey's taxpayers, compared to 0.19 percent nationally, they pay 22 percent of federal income taxes.
"If the Bush tax cuts expire, the climate is only going to worsen," Hughes said. "We may not have much sympathy for affluent people paying more taxes, but with high-income earners accounting for a growing percentage of taxes paid, if the cuts expire, it's going to continue impacting the local economy."