In his inaugural address, Gov. Murphy emphasized reducing NJ’s sky-high property taxes. This is an improvement over his previous posture of “if taxes are your issue then NJ may not be your state,” but words are cheap and if Murphy simply raises other taxes to lower property taxes, then NJ’s very-high-tax status quo will remain in place and the NJ economy will continue to underperform.
Take corporate taxes. Murphy’s previous actions (as opposed to words) cut the other way: he raised corporate taxes in 2020 to 11.5%, the highest rate in the nation. A new report by the Federal Reserve shows how costly this is for NJ’s start-up businesses: For every one percentage point increase in the corporate tax rate, employment in start-up firms declined 3.7%. That means that when NJ is compared to, say, New York, with its 7.25% corporate tax rate, NJ can be expected to have -15% fewer start-up jobs.
This is a very important data point because as the report says:
“New firms contribute disproportionately to both gross and net job creation, play a major role in business cycles and account for an outsized share of the innovation and aggregate productivity growth that raises living standards. Additionally, entrepreneurship is seen by many as an essential element of the occupational choice set.”
In other words, NJ’s extremely high corporate tax rate hurts NJ’s economy on many levels: lower job creation, less innovation, lower productivity and living standards, and a less attractive job market. Then add in another of Murphy’s actions: socking businesses with additional unemployment taxes rather than use federal relief funds to lessen the burden, as many other states have.
Why would entrepreneurs choose NJ? Why would educated, young job-seekers, who often seek to join start-ups, choose NJ? According to the Fed, they won’t. These jobs for the future will go to states with lower taxes. This is a very poor position for NJ to be in for a state with so many (unaddressed) challenges looming in the future.
Once again, Murphy the ex-Goldman Sachs banker surely understands the relationship between high taxes and low entrepreneurship, but politically ambitious, progressive Governor Murphy prefers to cater to his government union pals, who generously fund his political career.
Actions are what count. Murphy has consistently raised taxes and NJ’s economy has consistently underperformed. This has benefited his government union pals but little else. Will that really change?