Special Alert: NJ Kills Estate Tax

On Friday, September 30, after two failed attempts, the third time was the charm for lawmakers from both sides of the aisle when they reached a deal, giving the NJ estate tax its own death sentence. Under the deal, on January 1, 2017, the exemption from this tax will increase from $675,000 to $2,000,000. On January 1, 2018, the New Jersey estate tax will be phased out completely. An official vote in the Assembly and Senate is anticipated for Wednesday, October 5, 2016. Lawmakers are confident that there is easily enough support for the deal to pass.

The phase out of the NJ estate tax was a concession in a larger bill to replenish the state’s Transportation Trust Fund. The bill will increase the tax on gasoline while lowering the sales tax from 7% to 6.875% in 2017 and to 6.625% in 2018. Other concessions were made for retirees, veterans and the working poor.

On its face, the elimination of the estate tax is cause for celebration. NJ is in the minority of states which impose such a tax and its exemption has been far lower than most states, which have exemptions in excess of $1,000,000. Moreover, the deal will eliminate the angst which families who pay a tax on money which has already been taxed during lifetime when it was earned.

On the other hand, the cost to eliminate this tax is enormous. New Jersey has a debt in excess of $10 billion dollars. Yet it is going to eliminate a source of revenue which can provide between $300 million to $500 million per year according to various research groups. Although it is hard to argue the idea of eliminating the tax, one can question doing so with such a large deficit and no plan to replace the revenue. The increased gas tax is earmarked for roads and bridges only.

To get a sense of the practical impact of this bill, let’s take a look at its real impact on the taxpayer. At this time, gas prices in New Jersey are slightly less than $2 per gallon. So if consumers buy 50 gallons of gas, and are currently paying $100, they will be paying an extra $11.50 at the pump. If consumers are spending $100 on goods subject to a sales tax, their tax will be reduced from $7.00 to $6.63 – a savings of 37 cents. Arguably, it is hard to find the tradeoff for the taxpayer here.

In the meantime, NJ has the fifth highest income tax burden with a top rate of 8.97%. When factoring in property and other taxes, the average burden to the taxpayer is 12.3% of income earned. This ranks New Jersey as the second worst state in which to live as to taxation. The increase in the gas tax will certainly not help this ranking.

Share

Tags:

About the Author

Post a Reply

Your email address will not be published. Required fields are marked *

Top