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New Jersey (State of)
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City of Homes
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..Constitution and Court
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Relocation
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For many decades, at least since the Second World War, the Northeastern part of the country has been losing population. And business, and wealth. In recent years, New Jersey has been the state with the greatest net loss, and the Governor who is making the greatest fuss about it. Statisticians have raised this observation to the level of proven fact, although lots of people are even moving into New Jersey at the same time. This is a net figure, and it remains debatable what sort of person you would want to gain, hate to lose; so it's hard for politicians to be certain whether New Jersey's demographic shifts are currently a good thing or a bad thing.
Take the prison population, for example. Most people in New Jersey would think it was a good thing if the felons all moved to some other state because it would imply less crime and law enforcement costs. But one of the major recent causes of a decline in violent crime seems to be the universal presence of a portable telephone in everyone's pocket. Just let someone yell, "Stick 'em up!" loud enough, and thirty cell phones are apt to emerge, all dialing 911. On the other hand, cell phones are the universal communication vehicle for sales of illicit drugs and other illegal recreations, and the increase in automobile accidents is a serious business for inattentive drivers. Add to this confusion the data that capital punishment is more expensive for the State than incarceration is, and you start to see the near futility of knowing what is best to have more, or less, of.
What the Governor and his Department of Treasury mostly want to know is whether certain taxes end up producing a good net revenue for the State. That is, whether more revenue is produced by raising certain taxes more than others, or whether some taxes are a big component of the Laffer Curve, causing revenue to be lost by driving business, or business owners, out of state, in spite of the immediate revenue gain. The studies which have been done are fairly conclusive that executives tend to be most outraged by property taxes, since they have a hidden effect on the sale price of the house, and the amount of money available for school improvements. At least at present levels, a Governor is better off taking abuse for raising income or sales taxes, even though the apparent tax revenue might be the same as a rise in property taxes. Since property taxes are mostly set by a local municipal government, while sales and income taxes are usually set by state governments, a decision to raise one sort of tax or another can have unexpected consequences, or require obscure manipulations to accomplish.
Some politicians who believe their voting strength does not lie in the middle class, would normally want to hold up property values, not taxes because the data show that higher home prices drive away from the middle class and in certain circumstances are positively attractive to wealthy ones. Higher prices appeal to home sellers, at least up to a point. Wealthier people who are buying houses are likely to have an old one to sell; that's less true of first-time home buyers or people presently renting. Certain issues can even be reduced to rough formulas: a 1% increase in income tax would cause a 1% loss of population, but a 5% loss of people earning more than $125,000. A $10,000 increase in average home prices, on the other hand, causes a net loss of population, but mostly those with lower income. One important feature of tinkering with average home prices and property taxes is that these effects are "durable" -- they do not fade away over time.
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New Jersey is financially a bad state to die in, but the decision to move to Delaware, Florida or Texas is often made over a long period of years in advance of actually doing it. It has been hard to compile statistics relating changes in inheritance tax law to net migration of retirees and to present such dry data in an effective manner to counteract the grumblings that rich people are undeserving of tax relief, or dead people are unable to complain. But rich old folks are very likely to own or control businesses, and if you drive them out of state, you may drive away a considerably larger amount of taxation relating to the business in other ways. This is the underlying complaint of Unions about Jobs, Jobs, Jobs; but state revenue also relates to sales taxes of the business, business taxes, employee taxes, real estate taxes on the business property, etc, etc. Sometimes these effects are more noticeable in the region they affect; the huge population growth of the Lehigh Valley in recent years is mainly composed of former New Jersey suburbanites, who formerly earned their income in New York. The taxes of three different states interact, in places like that.
The audience of a group I recently attended contained a great many people who make a living trying to persuade businesses to move into one of the three Quaker states of the Delaware Valley. The side-bar badinage of these people tended to agree that many of the decisions to relocate a business are based on seemingly capricious thinking. The decision to consider relocation to the Delaware Valley is often prompted by such things as the wife of an executive having gone to school on the Main Line. Following that, the professional persuaders move in with data about tax rates, average home prices, and the ranking of local school quality by analysts. Having compiled a short list of places to consider by this process, it all seemingly comes back to the same capriciousness. The wife of the C.E.O. had a roommate at college who still lives in the area. And she says the Philadelphia Flower Show is the best there is. So, fourteen thousand employees soon get a letter, telling them we are going to move.
And, the poor Governor is left out of the real decision-making entirely, except to the degree he recognizes that home property taxes have the largest provable effect on personal relocation. And lowering the corporate income tax has the biggest demonstrable effect on moving businesses. But the largest un-provable effect is dependent on the comparative level of the state's inheritance tax.
Originally published: Wednesday, January 11, 2012; most-recently modified: Sunday, July 21, 2019