NEW BRUNSWICK – New Jersey’s income tax is “highly volatile” and is greatly dependent on a small group of wealthy residents whose income is generally based on the performance of the stock market, according to budget officer David Rosen of the Office of Legislative Services.
He said at today’s economic summit here that in fiscal year 2009, income tax revenues dropped 11.2 percent and another 3.3 percent in fiscal year 2010.
Rosen said 2010 revenues are back at 2005 levels, making it difficult for government to continue adequately funding various programs.
“The revenue floor fell out from under those programs,” he said.
In the past two years, the income tax revenues, which make up 35 to 40 percent of state revenues, have fallen $2.2 billion, sales tax revenues declined by $1 billion, and corporate tax revenue declined $900 million.
In an interesting note, revenues from alcohol taxes went up during that period.
Fiscal year 2012 revenues are projected to grow 4 percent, he said.
In New Jersey, some 2.5 million taxpayers earn less than $500,000, but only make up about a one-sixth of the tax revenues.
The number of residents earning more than $500,000 fell the past year, from 49,500 residents to 37,000 residents. This group paid 25 percent of all income taxes. The small number of residents in this income bracket contributed to an 87 percent drop in income tax revenues that come from this particular group, according to Rosen.
“When the economy goes south, this group suffers a much bigger loss in income,”
The number of millionaires also fell from 18,000 to 12,000 in 2009, he said. The smaller number of people making $1 million or more accounted for 77 percent of the income tax revenue decline from this particular group, according to Rosen.
Both OLS and the Treasury Department project a 5.9 percent and 5.7 growth in income tax revenues respectively.
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