If the 2.5% CBT surcharge does not sunset, as promised, it will send the wrong message in many ways
When companies in New Jersey thrive, so do the state’s finances. When the business community thrives, state tax revenues rise, social programs are funded and the generous philanthropic giving of the business community grows.
These are the hallmarks of a state with a solid economy.
Yet when it comes to supporting policies to make this a reality, such as allowing a temporary 2.5% surcharge on the state’s Corporation Business Tax (CBT) to sunset at the end of this year – as scheduled – a chorus of critics, mainly progressive groups, rise up to scream foul.
As if sunsetting a temporary tax increase is some kind of corporate handout. The critics unjustly demonize the companies that are benefiting, who in many cases provide generous financial support to those same critics. Maybe this is a little disingenuous?!
Letting the CBT surcharge expire is no corporate handout. After it sunsets, New Jersey will still have the nation’s fourth highest CBT rate. That’s on top of New Jersey’s reputation as one of the most regulated business climates in the U.S. The Tax Foundation’s 2023 Business Tax Climate index ranked New Jersey’s business tax climate 50th in the nation. Dead last.
We need to improve our business climate – and improve collaborations between employers and government in order to create a more business friendly environment.
Why are some up in arms? Let’s point out some realities:
The Difficult Road Ahead
New Jersey’s state economy, propped up by billions in federal pandemic aid, is facing a difficult road ahead when that aid runs out.
Further, inflation is high. There is a labor shortage. Interest rates have increased. Bank lending is tightening, which is a nightmare for businesses who rely on credit to survive.
Thanks to the federal aid and some sound fiscal decisions by Gov. Murphy and legislative leaders, the state’s credit rating has risen this year.
But the credit rating agencies have issued plainly worded warnings: If New Jersey wants to maintain its higher ratings, they said, the state needs to find long-term, stable, organic sources of revenue.
Economic Growth: Let Business Lead the Way
Where do you find such reliable revenue? Simple: Develop and nurture a healthy, growing state economy with the business community leading the way. That’s how New Jersey will flourish and pay for the state programs that helps make it a great place to work and to live.
Critics say that the CBT revenue is a stable revenue source. That’s wrong.
It’s stable now. But if New Jersey continues to overtax and overregulate its companies – which should be viewed as one of our most precious commodities – they will get fed up with our state and move jobs and operations elsewhere.
Many of our biggest employers can easily move back-end operations and positions to business friendly states like North Carolina, Texas or Florida. According to New Jersey Chamber of Commerce member companies, it is already happening. If our leaders do not let the CBT surcharge sunset, it would confirm that New Jersey is not serious about business attraction and retention.
There’s A Moral Imperative
There is also an important moral imperative here. Our policy makers implemented the CBT surcharge with a date for it to expire. It’s important that those in the business community – both companies here and those considering locating here – view our state’s leaders as true to their word. Without that trust, the reputation of our state will suffer irreparable damage.
We Need Long-Term Thinking. Not budget to budget.
Critics say let the state extend the temporary surcharge now, and if the economy goes south, our leaders in Trenton can simply sunset it then. That’s ridiculous. It’s like allowing a patient to bleed, and if the bleeding gets worse, we’ll bandage it then. The economy can bleed out.
That’s no way to run a railroad – or state tax policy. Businesses rely on predictability and long-term planning. They don’t go year-to-year, as happens in the political world. To extend the surcharge is sacrificing the future. It may help today, but it will hurt tomorrow.
And knowing the federal aid will run out, it is critical that we think about tomorrow…now.
We can’t continue to grow government and fund programs that the state won’t be able to afford down the road. The best thing for the future of the state is to let the CBT surcharge sunset as scheduled and use that as the beginning to develop more business friendly actions by our government.
Strict regulations, oppressive tax policy, and breaking promises is no way to treat the business community. It undermines our economy, as does protesting whenever the government considers even a modest pro-business policy move.
The New Jersey business community is respectfully seeking a well-functioning state business climate that fosters long-term growth. This is the only way New Jersey can support its rapidly increasing state budgets – and the only way it can assure New Jersey remains a great place to work and live.
Sunsetting the CBT helps New Jersey to become more competitive. That helps us become more attractive. Attracting more attention to New Jersey will allow us to better market our strong demographics, assets and location, which are among the best in country. A better tomorrow can become a reality, but not if we only focus only on today.
