TRENTON – The millionaire’s tax has resurfaced, as has the opposition to the top-earner surcharge, especially from the governor upon whom it had been levied in the past.
Gov. Chris Christie’s administration is offering evidence to show that in its new form, the millionaire’s tax would only further erode the business environment in New Jersey. In 2010, Christie vetoed a reincarnation of the surtax in record time, mere minutes after its passage. In 2009, a previous incarnation of the law that imposed a surcharge on households earning over $400,000 expired in the lame duck session of Gov. Jon Corzine.
As the Democrats have reinvigorated the fight to collect extra money from top-dollar citizens, Christie is standing firm against it, which state Treasurer Andrew Sidamon-Eristoff reconfirmed this week.
Not to be deterred, state Sen. Shirley Turner, (D-15), of Lawrenceville, is pressing for passage of her bill, S2742, which would reinstate a true millionaire’s tax, levying a surcharge on returns over $1 million, even though Christie has made it clear time and time again that he’ll veto such legislation.
But Turner also has accompanying legislation that would put the tax before voters for a referendum this year.
“I’m trying to help the governor out here so he won’t have to veto another millionaire’s tax bill,” she said Thursday. “He won’t have his fingerprints on it.”
She’s encouraged by a recent Rutgers-Eagleton poll that showed 72 percent of those polled are in support of a tax surcharge on “very high income residents.”
Turner said, “I don’t understand why we continue to coddle the wealthy. The poor and the middle class are really the people who have taken a hit in this recession.”
The poverty level in New Jersey is at a seven-year high, she said.
“I have not gotten any calls from millionaires that they can’t pay their mortgage, that their heat is being turned off, that they’re being laid off,” she said. “Provide some assistance to those who are being clobbered.”
Small businesses: Crunching numbers
The main argument that Christie has been making – most of the time in front of a captive town hall audience that doesn’t press the governor for explanation – is that a majority of millionaire’s tax qualifiers under the old law were small-business owners.
According to Treasury spokesman Andy Pratt, 2008 data was parsed to show that 56.8 percent of top-earner qualifiers showed some amount of business income on their personal tax returns.
Pratt said that the state is assuming that nearly all non-small businesses would be incorporated, and therefore would file their business income through the corporation, not their personal tax returns.
It is a stretch, though, to equate non-incorporated, personally-reported business income as strictly small-business income, though, according to an expert.
John Longo, an associate professor of finance and economics at Rutgers University, said it’s not necessarily true that millionaire tax returns – potentially two $500,000-per-year professionals with a small portion of personal business income – are small-business owners.
He agrees that the economic engine of the state is small business, and that millionaires are often small-business owners, not mansion-dwellers with gold flatware.
He referred to the 1996 tome The Millionaire Next Door: The Surprising Secrets of America’s Wealthy, which depicts the average American millionaire – contrary to popular belief – as being a 57-year-old male, two-thirds of whom are self-employed, with an average income of $247,000.
“The typical millionaire in America is not the Wall Street executive,” Longo said, so, “It wouldn’t surprise me that the bulk of the millionaires in the state are business owners.”
But not necessarily small-business owners, Longo said.
Longo said, “You don’t know exactly how somebody’s taxes are structured…Most small businesses are done through an LLC, (a limited liability corporation), or an S-corp,” a business model which allows profits and losses to be passed onto shareholders for tax purposes.
Pratt said the vast majority of businesses in the state could be considered small businesses using employee and revenue guidelines set up by the Small Business Association.
“If you want to throw medium size business in there, fine,” Pratt said. “It’s a tax on people creating jobs in New Jersey, however you want to slice it.”
Longo agrees that whatever size businesses the tax would effect, it is undoubtedly aimed principally at the employer class.
“New Jersey is already among the highest-taxed states in the country;” he said, and increasing taxes further could push more of the people doing the hiring out of New Jersey.
In fact, new data crunched on the true millionaire’s tax shows that this employer class would be even more affected by the new law than the old one.
Data from 2009 tax returns, Pratt said, show that 70.6 percent of all qualifying millionaires report some amount of personal business income.
There were 12,269 returns with gross adjusted income over $1 million – qualifiers for a true millionaire’s tax, like Turner’s bill would create – reporting total income of $32 billion. On average, that’s an annual intake of $2.6 million.
Of those 12,269 returns, the sizable majority, 8,695 millionaire households (70.6 percent), is reporting some sort of business income separate from any investment or capital gains.
Turner isn’t buying it.
“I don’t believe that this will hurt small business,” she said. “I think that that may have had some validity (with) the old law that was passed,” but not the true top-earners tax.
The proceeds would be limited to property tax relief, she said, which helps everyone.
“The governor said the wealthy will leave the state,” she said. “I don’t believe that, either. The majority of the people leaving this state are the retirees,” who are being chased off by “astronomical” property taxes, not income taxes.
In a time where everyone is looking for “shared sacrifice,” she said, “(The millionaires are) the only people in this state that are paying less in income taxes (than they were before). It’s shameful when we are asking those who are making the most to sacrifice the least, or not at all.”
She also chastised Christie for discontinuing the Earned Income Tax Credit, which was aiding less-fortunate families. “That’s a program that even Ronald Reagan supported,” she said. “That to me was unconscionable. We all know we have to balance the budget, but let’s balance the burden.”
The number of millionaires in the state fell 25 percent from 2008 to 2009, according to Treasury, and Republicans are using that data to show that the previous ‘millionaire’s tax’ pushed top earners out of state. From 2008 to 2009, millionaires fell from 16,000 to 12,176, resulting in about $500 million less coming in from the surcharge – not unusual considering the loss in tax revenue came amid a period of national recession.
“That might be tied to the real estate crash and the stock market,” Longo explained.
Office of Legislative Services budget officer David Rosen also recently downplayed the role that the surcharge played in the millionaire exodus.
