Friday, February 5, 2010

N.J. loses $70B in wealth during five years as residents depart

Here's what's going to happen in my soon-to-be-former home state: New Jersey's taxes and budget deficits have been driving people out for years. More people are leaving than are coming in, which is something new for the nation's most densely populated state. As such the state is "suffering" from a massive drop in revenue.

Rather than grasp the root cause of this phenomena - their own malfeasance and theft - and cut back the size of the state budget (pigs will fly before that happens) to coincide with the loss of revenue, they will simply squeeze the remaining citizens, who will be increasingly poor as the wealthy flee the state, for more and more of our tax dollars, until the state pretty much becomes a barren wasteland. This phenomena is occurring now in California and other states as well. They've already increased the tolls on the GSParkway and the AC Expressway three-fold over the last several years, with even more massive hikes scheduled. I shudder to think what they have in store for us even as they experience less and less revenue and increase their spending ever more.

This is the problem not just with our government, but all government. It doesn't create anything. It is just a massive, wealth destroying beast. It takes from what we, the people produce, steals most of it, and throws us back some crumbs in return. This isn't a problem that can be fixed by some sort of reform. It is an incurable genetic defect inherent in all governments, all states, all economic systems. Laissez Faire Capitalism cannot exist hand-in-glove with the State. The State, by its nature, will turn it into a crony capitalist system, also known as corporatism, also known as fascism. And that is what we have. And now, NJ, and California, and New York, and many others, will reap the whirlwind. Other states might want to consider bailing on the union now before they get suckered into bailing the rest of them out. And if you're like me, you're making plans to leave these states before they run out of rich people to tax and drop the hammer on the rest of us.

    Newark Star Ledger -

    More than $70 billion in wealth left New Jersey between 2004 and 2008 as affluent residents moved elsewhere, according to a report released Wednesday that marks a swift reversal of fortune for a state once considered the nation’s wealthiest.

    Conducted by the Center on Wealth and Philanthropy at Boston College, the report found wealthy households in New Jersey were leaving for other states — mainly Florida, Pennsylvania and New York — at a faster rate than they were being replaced.

    “The wealth is not being replaced,” said John Havens, who directed the study. “It’s above and beyond the general trend that is affecting the rest of the northeast.”

    This was not always the case. The study – the first on interstate wealth migration in the country — noted the state actually saw an influx of $98 billion in the five years preceding 2004. The exodus of wealth, then, local experts and economists concluded, was a reaction to a series of changes in the state’s tax structure — including increases in the income, sales, property and “millionaire” taxes.

    “This study makes it crystal clear that New Jersey’s tax policies are resulting in a significant decline in the state’s wealth,” said Dennis Bone, chairman of the New Jersey Chamber of Commerce and president of Verizon New Jersey.

    The report was commissioned by the state Chamber of Commerce and the Community Foundation of New Jersey to study the effects of wealth migration on charitable giving after executives noticed more affluent philanthropists were moving away. Wealth includes assets such as real estate, stocks, bonds, 401ks, mutual funds and vehicles.

    But economists say there are many other implications for the state’s financial health.

    Wealthy residents are a key driver for everything from job creation and consumer spending to the real estate market and the state budget, said Jim Hughes, dean of the Edward J. Bloustein School of Planning and Public Policy at Rutgers University. In New Jersey, the top 1 percent of taxpayers pay more than 40 percent of the state’s income tax, he said.

    “That’s probably why we have these massive income shortfalls in the state budget, especially this year,” he said.

    Until the tax structure is improved, he said, “we’ll probably see a continuation of the trend, until there are no more high-wealth individuals left.”

    He added the report reinforces findings from a similar study he conducted in 2007 with fellow Rutgers professor Joseph Seneca, which found a sharp acceleration in residents leaving the state. That report, which focused on income rather than wealth, found the state lost nearly $8 billion in gross income in 2005.

    Findings from the Boston College report show that about 302,780 households left New Jersey between 2004 and 2008, only slightly lower than the 323,350 households that moved into the state. However, the average net worth of the departing households was about 70 percent higher, at $618,330.

    Those who left were also more likely to be older and more educated, with jobs as entrepreneurs or in the finance and professional industries, the study found. Those replacing them tended to hold management or support jobs in the manufacturing industry. The study analyzed data from three main sources: The Federal Reserve’s Survey on Consumer Finances, the Census Bureau and the Internal Revenue Service.

    Experts pointed to an abundance of anecdotal evidence to support the numbers. Ken Hydock, a certified public accountant with Sobel and Company in Livingston, said in this 30-year-career he’s never seen so many of his wealthy clients leave for "purely tax reasons" for states like Florida, where property taxes are lower and there is no personal income or estate tax. In New Jersey, residents pay an estate tax if their assets amount to more than $675,000. That’s compared to a $3.5 million federal exemption for 2009.

    Several years ago, he recalled, one of his clients stood to make $60 million from stock options in a company that was being acquired by another. Before he cashed out, however, the client put his home up for sale, moved to Las Vegas, and “never stepped foot back in New Jersey again,” Hydock said.

    “He avoided paying about $6 million in taxes,” he said. “He passed away two years later and also saved a huge estate tax, so he probably saved $7 million.”

    Meanwhile, Gov. Chris Christie’s administration said the report is just another reminder of the difficult tasks ahead.

    “It’s the consequence that we’ve been talking about for so long, of the spending and taxing habits that we’ve all experienced,” said Mike Drewniak, a spokesman for Christie. “It’s the sort of thing that we feel the need to stop so we can get New Jersey back on a prosperous path.”

1 comment:

  1. This is certainly a scary trend that needs to be stopped. If you overburden the rich with taxes they will leave and they have the means to do so. State governments need to wakeup to this. On a positive note I believe NJ now has a governor willing to address this issue.