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High income tax rates in New Jersey and Washington, DC

There is an editorial in today’s Wall Street Journal (Soaked in New Jersey) about an increase in New Jersey’s state income taxes.

On Monday the Legislature passed Governor Jim McGreevey's "millionaire's tax" (which actually kicks in at $500,000 of household income, but never mind). The state's top marginal tax rate is set to rise by 41% -- to 8.97% from 6.37% -- and make New Jersey's top income bracket the fifth-highest in the country.

I agree with the Wall Street Journal editorial page on this issue. The desire to sock it to the rich may be with the best egalitarian intentions, but it’s bad policy, especially for a state such as New Jersey which is in a multi-state area, meaning that people can choose to live in a different state and still keep their same job.

In the short run the tax increase will increase New Jersey’s tax revenues. But in the long run, high taxes have negative effects on a state. People will have a greater preference to live in a neighboring state. Rich people working in New York City will be more likely to live in New York City than live in New Jersey. So New Jersey will lose some of its best taxpaying citizens, the rich people.

Washington, DC suffers from the same problem. Washington has a ridiculously high income tax rate compared to Virginia, so no one who has a good salary lives in Washington. If you earn $100,000/year, and the tax rate is 9.3% in Washington and 5.75% in Virginia, then you save $3,550/year by living in Virginia. Washington will never be anything but a pathetic financially starved city until it lowers its income tax rates. (Note: the actual tax savings are somewhat less than $3,550 because the top rates kick in at $30,000 in Washington and $17,000 in Virginia. Source: Bankrate.com).

posted Wednesday, June 23, 2004

5 Comments:

By Coffee:

You forget that the New Jersey state income tax was designed to finance other tax cuts... specifically, real estate tax cuts.

In terms of taxes as a percentage of overall state income, New Jersey is in the bottom half of states, clocking in at 5.9%. (Source)The lower cost of living in New Jersey (along with its lower sales taxes), compared to its neighbor of New York, makes New Jersey more competitive a destination for residents. What hurts New Jersey in terms of desirability is its high real estate taxes. Thus, by cutting real estate taxes, New Jersey makes its state more attractive to the middle class, but the money had to come from somewhere, and so it got tacked on to high-income earners... who will find that moving to New York City would impose even greater income tax, sales tax, and cost of living burdens, compared to remaining in New Jersey.

posted at 6/25/2004 11:42 AM

By Simplemindjoe:

And you also forget to mention that 'income tax' is also a great way to provide for wealth redistribution. Take from those who have and give to those who don't. Sounds great, very Robin Hood, or dare I say it "communistic"....okay that was a bit over the top.

Anyway, concerning the infamous 'real estate tax', one day I woke up and realized that all this babaloo about the greatness of the United States is property rights was just that--a bunch of hot air. Think about it, if you don't pay your 'real estate tax' what happens? Yeap, the government will come and take it away from you. So, my question is, who really owns the property; you or the "people"? Then that would mean that you don't actually ever own any thing, car tax, income tax, real estate tax.

Everyone stop the crying. Raise the income tax so that at the end of the day we are all at minimum wage, and let the government spend the money; as we all know, the government will always know how to spend the money better than you.

posted at 3/13/2006 10:33 PM

By Simplemindjoe:

This post has been removed by a blog administrator.

posted at 3/13/2006 10:34 PM

By Jimmy:

To all the Liberals who think this was a good idea, here is my reality. I work in NYC. I lived in Ridgewood NJ for 5+ years and was just fed up with the ever increasing taxes. So I moved my family to Darien Conn where I currently live. My income tax fell to almost 1/2 of what it was. A top rate of 5% from the new 9%. I do earn over $1 mio a year. My property tax ALSO more than halved on the same size home. I went from $18k a year to under 9k a year. I encourage people to do the same. When posters say the money has to come from somewhere they are wrong. They need to stop spending!! Now you get nothing from me! I like that. Fools in NJ!

posted at 6/28/2006 10:27 AM

By Jimmy:

Corzine is a tax and spend super liberal who will continue to destroy the state. NJ has crazy laws that force low income housing into every decent neighborhood. Sure, why not? Everyone has the right to live in the best neighborhoods right? Force Millionaires to live next door to crack addicts. Low income housing going up next to Mansions. Hey, its nice to bring the crack dealers into all the schools. Why not bust them all? NJ is so broke. Take away guns from all residents and more and more crime is coming. NJ is the United Soviet Socialist Republic of New Jersey. Sooo happy I finally sat down my wife and convinced her we needed to leave. I hope they go bankrupt now! Hahahahahaha

posted at 6/28/2006 10:34 AM