Nov. 14 (Bloomberg) -- New Jersey’s high taxes drive out wealthy residents, slowing the state’s recovery, said Charles Steindel, the treasury department’s chief economist.
Property, income and estate taxes are the top reasons people leave, said Steindel, who released a study of federal tax data and a survey of financial advisers today at an economic forum in Trenton organized by the treasury department.
Governor Chris Christie, a first-term Republican, has twice vetoed measures sponsored by Democrats that would have raised income taxes on residents earning $1 million or more. Senate President Stephen Sweeney, the state’s highest-ranking Democratic lawmaker, said last week his party would push again for passage of a so-called millionaire’s tax.
“There is a relationship between state tax rates and where people move,” Steindel, a former senior vice president of the Federal Reserve Bank of New York, told reporters. “The higher tax-rate states generally lose more people every year.”
Steindel released the results of a survey of subscribers to the state’s online newsletter, which includes financial advisers to high-wealth clients. More than half of the respondents said their clients had recently left or expressed interest in leaving, Steindel said.
Three-fourths of those who expressed interest in leaving have incomes over $100,000, while 15 percent have incomes over $1 million, according to the survey.
The state’s losses from the 2004 millionaire’s tax, approved under former Democratic Governor James McGreevey, totaled about 20,000 taxpayers and $2.5 billion in income, according to Steindel’s study.
“Is this the only thing on their minds? Certainly not,” Steindel said, referring to the effect of taxes. “It does have an effect on the state economy and it does have an effect on peoples’ location decisions.”
New Jersey’s economy was ranked the third-worst performing among U.S. states in the year through June 30, according to the Bloomberg Economic Evaluation of States Index, which uses data on employment, income, real estate, taxes and local stocks.
The state’s recovery lagged behind the nation, the three major credit-rating companies said when they each lowered New Jersey’s bond ranking by one level this year.
New Jersey has been “bumping the bottom” during the recovery, as it lags neighboring New York City in job creation since the end of the recession, said Erica Groshen, a vice president at the Federal Reserve Bank of New York. New Jersey’s unemployment rate was 9.2 percent in September, while the national rate was 9.1 percent.
While its jobless rate is higher than the U.S. figure, its participation rate -- the proportion of the population that is either employed or looking for work -- is 65.9 percent, above the national rate of about 64.2 percent, Groshen said. A higher participation rate indicates a more ready workforce, she said.
New Jersey’s economy is poised to recover as officials practice fiscal restraint and fewer people leave the state, said Joel Naroff, president and founder of Naroff Economic Advisors in Holland, Pennsylvania. Reduced government spending in New Jersey will continue for at least two years, he said.
While New Jersey has a housing surplus, it “has not had the default crisis seen elsewhere,” Naroff said. With residents struggling to sell their homes, they have less flexibility to head to states such as Florida, where the cost of living is lower, he said.
“If you can’t sell your house, you can’t move,” he said. “Expect slowly improving economic and revenue growth, but not any surge coming from income, sales or corporate taxes. This is a slow population-growth state. We’re slowing the ’out’ migration.”
--Editors: Stacie Servetah, Pete Young
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