Can state income tax shoulder more of revenue load?

New Jersey’s top earners are not exactly hurting.

While many are paying a lot in property taxes, the reality is that their income tax load is not nearly as great as that paid by their neighbors.

New Jersey Policy Perspective, the liberal research and advocacy group, issued a report today that “is countering the claims that the state has abnormally high levy rates” for high-earners.

While the more than 10 percent tax rate for top earners seems high, the graduated system creates a lower actual tax burden, the report found.

The report used Gov. Chris Christie’s most recent tax returns — which he made public in October — to demonstrate that high-earners pay far less than one might expect given the 10.25 percent top rate.

The report, released today, demonstrates how Christie and his wife Mary Pat paid a total 6.2 percent tax rate on their combined income because of the state’s graduated tax rate. While the top brackets levy a more than 10 percent tax, only the portion of income that falls into that margin is taxed at that rate.

“In New Jersey, opponents of progressive taxation like Governor Christie argue that rates are too high,” the report states. “But a full understanding of the state’s tax structure shows that New Jersey is actually quite competitive.”

This raises a simple question: Why not use the income tax to help offset the state’s reliance on property and sales taxes, which hit middle-income folks hardest? Gov. Christie, when he vetoes a surcharge on incomes over $1 million earlier this year, said it would make the state less competitive.

But, as NJPP points out, the Christies pay less in income taxes than they would in New York or Philadelphia.

In 2009, the Christies reported $540,792 in taxable income and paid $33,619 in taxes.
“To most, that sounds like a lot of money but to them that’s 6.2 percent of their New Jersey taxable income, considerably less than one would expect them to pay given their 10.25 percent tax bracket,” the report stated.

That is because only the $40,792 over $500,00 was taxed at a 10.25 percent rate. The rest of their income was taxed at a lower rate.

When comparing the overall rate, with surround states, NJPP found the Christies are paying less than some of their neighbors.

“The 6.2 percent effective income tax the Christie’s paid to New Jersey is less than they would have paid to New York State if Mrs. Christie’s job were there; less than they would have paid if she had worked in Philadelphia; and about what they would have paid if they had lived in Georgia,” the report found.

A bigger bite might not make Christie happy — or others in his tax bracket — but it seems unlikely that it would force high earners out of the state, making Christie’s lone argument against higher income taxes collapse of its own weight.

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Author: hankkalet

Hank Kalet is a poet and freelance journalist. He is the economic needs reporter for NJ Spotlight, teaches journalism at Rutgers University and writing at Middlesex County College and Brookdale Community College. He writes a semi-monthly column for the Progressive Populist. He is a lifelong fan of the New York Mets and New York Knicks, drinks too much coffee and attends as many Bruce Springsteen concerts as his meager finances will allow. He lives in South Brunswick with his wife Annie. View all posts by hankkalet