Try a flat tax to fatten New Jersey economy
This opinion-editorial by James A. Kozachek originally appeared in the Gloucester County Times
With the new state budget now in place, Democrats contend the state has lost a golden opportunity to help support suburban school districts with a so-called millionaire’s tax — in which New Jerseyans would be taxed 10.75 percent for every dollar earned over $1 million.
The Republicans consistently rejected this idea, appalled by the notion of increasing taxes in the worst economy in 70 years. Acting on a promise, Gov. Chris Christie vetoed the bill to enact the millionaire’s tax.
Christie says additional taxation will only serve to drive away businesses and people who are the most adept at making money. I agree; our economic situation remains unstable and insecure.
In my line of work, as an attorney representing clients involved in residential, commercial and industrial construction projects, I witness every day the hard questions that business owners face. Money is still tight; entrepreneurs and other so-called millionaires are still nervous to invest in New Jersey.
While increasing taxes on the wealthiest New Jerseyans is a bad idea, the recent budget debate raised important questions about the need to modify the existing tax structure to increase stability and encourage these business leaders to keep investing in our state.
If I own a business, I need predictability. If I am concerned that my income will drop, I am somewhat reassured by knowing my taxes will drop with my income.
Throughout the years, policymakers have proposed changes to the tax structure to make it more equitable. The leading concept has been the flat tax, in which taxpayers — individual, family or corporation — pay a flat percentage based on what they earn each year. This could work with New Jersey income taxes, which now have graduated rates.
The bureaucracy of the flat tax is simple as well. Taxpayers complete a quick and simple short form that sets out their gross income — in some proposals, the taxpayer is allowed to deduct certain costs and expenses — and then applies the flat percentage rate to that income to ascertain the amount of taxes owed.
If I make $60,000 each year and the flat tax rate is 17 percent, then I pay $10,200 in taxes. If I make $600,000, then I pay $102,000. The purpose behind such a system is to avoid unfair tax structures that benefit some over others, to eliminate the loopholes and deductions that allow certain people and companies to pay far less than their fair share in taxes, to limit bureaucratic waste, and to create stability and predictability in our tax payments.
Local economies flourish when businesses are incentivized to take up residence in a particular location. Our history is replete with examples: mining towns, oil-rig towns, steel towns, automotive cities like Detroit and the more modern example of the sprouting pharmaceutical facilities in Singapore — a nation that makes it simple for businesses to start operations and caps tax payments at 17 percent.
Good government relies on programs that attract businesses and create jobs, thus stimulating the local economy. As advocated by former U.S. Labor Secretary Robert Reich, states need to increase demand so that supply-side jobs will be needed. If we cannot find adequate levels of customers within the state, then we must find demand for what New Jersey has to offer in other places. Without adequate demand, businesses will have no reason to hire and invest locally.
While we may want to consider a fair modification to the tax systems under which we operate, such as implementing a true flat tax or a modified version that has been dubbed “The Fair Tax,” New Jerseyans certainly can’t afford increased taxes — millionaires or not.
