NEW REPORT: “Fair and Square” Points Way to Tax Policies Making New Jersey a More Equitable, Affordable Place to Live
For Immediate Release

November 13, 2024 — Reforming New Jersey’s tax system in targeted ways would reduce income inequality, base taxes more on ability to pay, and provide revenues needed for public investments that would make the state more affordable for everyone, a new report from New Jersey Policy Perspective shows.
Recommendations in “Fair and Square,” by NJPP Senior Policy Analyst Peter Chen, would provide the state with nearly $4 billion a year in additional revenue. That’s enough to, for example, enable all children to have free meals in public schools, restore state aid to schools now cutting staff and programs, and cover the entire shortfall in the state budget.
With the state facing potential fiscal crisis and projected budget shortfalls, the report urges the state to adopt new revenue sources that will protect the state’s finances while focusing primarily on wealthy individuals and corporations.
The report calls on New Jersey to do the following:

• State income tax: Add brackets that would take effect at incomes above $2 million, $5 million, and $10 million in income and expand working-family state tax credits such as the Child Tax Credit and Earned Income Tax Credit to help low- and moderate-income households.
• Inherited wealth tax: Promote income equality by reducing unearned wealth transfers and taxing the largest inheritances.
• Sales tax: Restore the sales tax to 7 percent from the current 6.625 percent and implement reforms so the system, created under a goods-based economy, better reflects today’s tech- and service-oriented economy.
• Realty transfer fee: Add two percentage points to the existing 1 percent realty transfer fee on home sales over $1 million and four percentage points on sales over $2 million.
• Corporate tax: Require large multinational corporations doing business in New Jersey report profits from overseas subsidiaries, cutting off benefits to shifting profits abroad.

Policy Proposal Net effect on state revenues
Adding income tax brackets and expanding family tax credits $772 million
Inherited wealth tax reform $450 million-$598 million
Sales tax restoration to 7% $702 million
Sales tax loophole closing $189 million
Supermansion tax $410 million
Mandatory worldwide combined reporting $888 million
Increased tax enforcement $385 million
TOTAL $3.8 billion

“These reforms would set New Jersey on a more prosperous, affordable path,” said report author Peter Chen. “Without common-sense changes in tax policy, New Jersey runs the risk of falling back to the path it was on at the end of the Christie administration, with a low credit rating, enormous pension and school funding liabilities, and ill-advised cuts in state employment and investment.”
“New Jersey has been a leader in using tax policy to reduce inequality and avoid the regressive tax systems used in most states, which force low-income households to pay higher tax rates than high-income households,” said Marco Guzman, Senior State Policy Analyst at the Institute on Taxation and Economic Policy (ITEP), which provided modeling and analysis for this report. “NJPP’s report shows additional paths forward to make New Jersey’s system even more progressive, providing needed funding for critical services without placing disproportionate financial burden on working families.”
Though New Jersey, overall, is an affluent state, inequitable concentration of that wealth is a barrier to more widespread prosperity for all. Key public investments in schools, public transportation, and municipal services suffer from decades of being funded at levels far below needs. And economic growth is increasingly concentrated in profits for multinational corporate profits rather than working people’s pay and benefits. This deepening system of haves and have-nots is especially profound along racial/ethnic lines, with Black and Hispanic/Latinx workers paid lower wages and holding less wealth per household than white households.
Under a state tax system more closely tied to ability to pay New Jersey — more progressive — the wealthiest households and largest corporations would contribute more than they do now, and other residents would pay less. In addition to helping reverse a trend where New Jersey takes in less revenue than needed to meet obligations, such reforms reflect societal values that those who have benefited the most from our economic system should contribute a higher percentage of their income and pay back their fair share to the rest of the state, while those with fewer financial resources should pay a smaller share.
Today, state revenues fail to keep pace with existing obligations, in part because of underinvestment in prior years — as was the case with state employee pensions, deferred maintenance on New Jersey Transit, and failing to fund schools at the level required by law. These choices led to irresponsible budgeting that mortgages the state’s future for short-term fixes. Long-term projections from an independent group of New Jersey budget experts show that the gap between revenue and obligations will expand in the years to come, draining the state’s surplus and hampering its ability to provide necessary services.
Potential federal policy changes heighten the urgency to reform New Jersey’s revenue system. Federal tax law changes that, starting in 2019, gave substantial tax cuts to wealthy individuals and corporations could become permanent in 2025 when those provisions expire. And expiration of federal funds from pandemic-era aid for states will reduce funding for such critical services as New Jersey Transit.
Read the full report.
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