A pair of bipartisan bills that aim to phase out New Jersey's estate tax and offer more exclusions for taxes on retirement income were advanced Monday by the Senate Budget and Appropriations Committee.
The measures, both co-sponsored by state Sen. Paul Sarlo (D-Wood-Ridge) and state Sen. Steven Oroho (R-Sparta), will look to gradually eliminate the estate tax over a five-year period and increase exclusion rates for retirement income exemptions to as much as $100,000 in some cases.
The legislation calls for the exclusion rate on the estate tax, which currently applies to inheritances valued at $675,000 or more, to be upped to $1 million beginning Jan. 1, 2017. The rate would then be increased annually until it is eliminated altogether.
“This is a targeted cut that will help middle class families by reducing and gradually eliminating a tax that can apply to those with relatively modest assets, including houses and small businesses that are passed down from parents,” said Sarlo. “With the dramatic increase in real estate values in New Jersey homes have gained financial value, but that does not mean the owners are wealthy. New Jersey is one of the two states that has an inheritance tax and an estate tax. This will eliminate that duplication.”
Oroho said the bill brings New Jersey “a big step closer to eliminating the nation’s highest death tax.”
“This estate tax phase out would restore our competitive economic position by enticing capital back to New Jersey,” Oroho said. “Just as we enacted $2.3 billion in bipartisan business tax cuts in 2011 to increase financial resources and jobs, we should get this tax cut on the books now to retain more capital and opportunities for the people of this state.”
The bill has been well-received by the business community thus far.
“Both the estate and inheritance taxes place us in a position where we are not only uncompetitive nationally, but we are not even competitive with our neighboring states,” said New Jersey Business & Industry Association CEO and president Michele Siekerka. “The only individuals who are now paying the estate tax are those who due mostly to family or business reasons choose not to leave the state. Those who can leave New Jersey do.”
New Jersey Chamber of Commerce senior vice president Michael Egenton added that tax reform bills such as these will ultimately leave residents with more money in their pockets at the end of the day that they can then pump back into the economy.
But New Jersey Policy Perspective senior policy analyst Sheila Reynertson argued that according to her own numbers, the $300 million or so that the tax generates annually is a lot to give up considering that it only affects approximately 3,000 estates per year.
“We are not losing wealthy families over this tax,” said Reynertson. “In fact, we are creating and attracting new wealthy families who love living here. They appreciate our excellent schools, our open spaces, our walkable villages, our convenient transit system into two of the finest cities on the East Coast. But if we don’t priorities investments into these impressive assets, we won’t have much to boast about anymore. Losing the funds from this tax would seriously threaten investments in the assets that build a strong state economy for all of us, while benefiting very few.”
Also garnering the support of the business community, the retirement income measure would look to increase the threshold for retirement income exemptions for married couples, from $20,000 currently to $100,000 over three years. Exclusion rates would also be increased to $50,000 for married couples filing separately and $75,000 for single taxpayers.
Pension income, annuity withdrawals and 401(k) and individual retirement accounts would be covered by the higher exemptions.
The bill comes on the heels of a recent NJBIA study that found that the state lost roughly $18 billion in net adjusted gross income over a 10-year period due to outmigration.
“As pension tax is directly related to retirees, we are also concerned that its impact drives New Jersey families apart,” said Siekerka. “If we do not keep this pension income in New Jersey, we are losing all of the economic activity it generates and separating grandparents from their children and grandchildren.”
State Sen. Jennifer Beck (R-Red Bank), a member of the Senate budget committee, voted for both bills.
“We all feel the pain as grandparents are forced to split from their children and grandchildren to protect what they worked their whole lives to earn and pass on,” said Beck. “We feel the pain as employers, who once paid solid wages to our neighbors, are taxed out of New Jersey, and as our children graduate college in more affordable states, where they then get jobs, afford to buy properties and start families. Such devastating effects of high taxes hurt all of us who remain in New Jersey and it impacts future generations.”
The bills will now head to the full Senate for consideration.