About two years ago, on July 3, 2021, this column’s subject was that accountants in New Jersey had simple advice for their clients about improving their financial position: Get out of Dodge or, more accurately, New Jersey.
A portion of the column about New Jersey accountants’ head-for-the-(Southern)-hills recommendation was as follows: “Said CNBC on July 11, 2021: ‘Certified public accountants have a message for New Jersey-based clients: It’s time to move to a lower-cost state. That’s according to a recent survey from the New Jersey Society of CPAs, which found that 70% of professionals surveyed who have clients in the state have advised them to move due to the high cost of living.’”
Tennessee, though not seeing a stream of moving vans from the Garden State to the Volunteer State, has about five times more New Jersey residents moving here than Tennesseans moving to New Jersey.
New Jersey is among the high-tax, high-cost states that are losing population, along with California, New York, Illinois and some others. At the close of 2022, NJ Spotlight News cited U.S. Census Bureau figures that showed New Jersey lost population in 2022: the state’s population has declined three of the last four years. NJ Spotlight News in 2022 also highlighted another problem New Jersey shares with high-cost states: high property taxes, in New Jersey’s case, the nation’s highest: “the average New Jersey property-tax bill has risen to nearly $9,300,” the publication reported.
More evidence: A Hertz rental truck to accommodate a three-to-four-bedroom home to move from Knoxville to Newark would at present cost $644; to move from Newark to Knoxville, it’s $2,494.
A fairly straightforward principle of economics is that when things become too expensive, people find alternatives. Businesses understand this very well, expanding or contracting depending upon numerous factors, with cost to consumers a leading issue. Government is often much slower to respond. Government typically resists downsizing; therefore, when people and businesses move away from a city, county or state, there are fewer taxpayers left to pay the bills. When taxes are raised to make up for this decline (as well as for inflation and other concerns) it motivates more people to leave, and the cycle repeats itself.
Businesses, to survive in whatever the economic conditions, want to keep existing customers and attract new ones. Raising prices is rarely the first action taken. New Jersey Gov. Paul Murphy has proposed a budget for the coming year that seems to acknowledge an understanding that government sometimes has to act like a business.
Among Murphy’s proposals is agreeing to end this year a “temporary” 2.5% corporate business tax surcharge that began in 2018, a surcharge that was supposed to have declined annually until disappearing in 2021. However, the legislature kept extending the surcharge; with it in place, at 11.5%, New Jersey had the nation’s highest state corporate business tax. Nine percent is still high, but New Jersey business associations are signaling approval of the governor’s proposal.
Murphy takes a different tack with property taxes. He wants a second year of a property tax rebate that would provide $450 in renters assistance to families making up to $150,000 per year; property tax rebates of $1,500 to households making up to $150,000; and $1,000 in rebates to families making between $150,000 and $250,000. But that’s not a tax decrease; it’s giving back to people a portion of their own money, and property taxes are still high.
New Jersey isn’t the only northeastern state grappling with how to make itself more affordable, as the Wall Street Journal reported on Feb. 28: “The Northeast has seen a spate of proposals … Massachusetts Gov. Maura Healey, a Democrat, this week said her coming budget proposal will include a reduction in the state’s capital-gains tax as well as a new $600 tax credit for dependent children and seniors. Ned Lamont, the Democratic governor in Connecticut, recently proposed the first income-tax rate cut for that state in almost 30 years.”
What’s underlying this? Competition. Northern states are in competition with low-cost, no-income-tax states like Tennessee, Texas and Florida, and other financially attractive states that may have state income taxes but not the same overall tax burden.
Whether the exodus from New Jersey and northeastern states to Tennessee and other Southern states will be stemmed by these acts is unlikely. It will probably take more. But what it shows at a minimum is that Tennessee – and states like it – have been right all along.
Jimmy Rodefer is CEO of Rodefer Moss & Co., headquartered in Knoxville, and with offices in Tennessee and Virginia. Contact him at www.rodefermoss.com/Knoxville.