Gov. Phil Murphy and Senate President Stephen Sweeney may have reached a compromise between their competing budget and tax plans just in time to avoid a government shutdown, but the end result isn’t so conciliatory for New Jersey businesses.
The $37.4 billion budget that lawmakers passed included income tax hikes on both individuals and corporations. The top income tax bracket increases from 8.97 percent to 10.75 percent on income over $5 million, while businesses earning more than $1 million will be taxed at 11.5 percent for the first two years and at 10.5 percent for the remaining two years. The current rate is 9 percent.
As a result, New Jersey will now have the second highest corporate tax rate in the U.S. and rank last overall in the Tax Foundation’s State Business Tax Climate Index.
“Most people don’t realize that the income tax increase on high earners negatively impacts small business owners who are not multimillionaires,” said NFIB/NJ State Director Laurie Ehlbeck in a statement. “Since most small businesses are pass-through companies, they file their business income on their Personal Income Tax form, and many will be hit hard by this new, higher tax. Most small company owners don’t pocket that income, but reinvest it in their businesses.”
Ehlbeck added, “The new higher New Jersey corporate tax rate also has a very negative impact on the state. It will reverse the positive economic trends we see from recent federal tax cuts. Right now, the economy is surging nationally, and states are seeing increased revenue. NFIB’s Small Business Economic Trends surveys show record earnings, more hiring, company expansions and higher sales across the country. Now, New Jersey’s state’s economy will not surge but suffer.
“Our governor and our legislators may just as well have hung up a sign in the Capitol saying “New Jersey is Closed to Business,” And, if those companies leave, their taxpaying workers move where the jobs go. Our state already has the highest out-migration rate in the region of taxpayers leaving New Jersey, and this makes much worse.”