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New Jersey has nation's second-highest tax burden, study says

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New Jersey residents paid a combined 12.4 percent of their income in state and local taxes in the fiscal year that ended June 30, 2010 — the second-highest tax burden in the country, trailing only New York, according to an annual report by the nonprofit Tax Foundation.

New Jersey has been locked in the second position, behind New York and ahead of Connecticut, since 2005. The report included the most recent available statistics.

The 12.4 percent rate was the highest in the state since 1977, when New Jersey ranked third in the country, according to the annual report.

David Brogan, first vice president with the New Jersey Business & Industry Association, said the state should improve its ranking in the future.

“I think you’re going to see a greater benefit of the 2 percent property tax cap as we go forward,” Brogan said. He added that Gov. Chris Christie’s emphasis on reducing taxes, like state business taxes, also will help the state.

“New Jersey’s always going to be a high-tax state, there’s no doubt about, but I think the governor is moving in the right direction,” he said.

While in-state government spending is the primary factor driving the tax burden, the report allocates taxes paid by each state’s residents to other states’ governments as part of the residents’ state tax burdens.

For example, the report singles out New Jersey and Connecticut as states where residents pay a relatively high share of their income to other state governments, likely as a result of capital gains taxes. In addition, the state’s tax burden is increased by New Jersey residents who pay income taxes to New York.

Foundation economist Scott Drenkard said while that’s a factor in New Jersey, it is in-state taxes — like property and income taxes — that are driving its ranking.

“The tax rates are just high in New Jersey, and that’s why tax burdens are high,” Drenkard said. He noted that the 2010 fiscal year included the last six months of the 10.75 percent upper-income tax rate under former Gov. Jon S. Corzine.

While New York’s rate was 12.8 percent and Connecticut was 12.3 percent, other neighbors were lower, with Pennsylvania ranking 10th, at 10.2 percent, and Delaware ranking 31st at 9.2 percent.

The lowest rates were paid by Alaska, 7 percent; South Dakota, 7.6 percent; and Tennessee, 7.7 percent. The national average state and local tax burden was 9.9 percent, tying with 2008 for the highest level since 1996.

Drenkard noted that the national rate was affected by the recession.

New Jersey residents averaged $4,853 in in-state taxes and $1,836 in taxes paid to other states. The state’s $53,869 per-capita income was second in the country, behind Connecticut.

It was the second this month that New Jersey had the second-worst ranking in a Tax Foundation report. The state also scored poorly in a report of state business tax climates, based on the rates on July 1, 2012.

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