1. New Jersey’s Tax System A National Perspective Joseph Henchman Vice President, State Projects Tax Foundation henchman@taxfoundation.org

2. 2 States Michigan New York

3. Tax Foundation Ranks New Jersey State Business Tax Climate Index – 49 th (1 st is best, 50 th is worst) – Second worst property tax, third worst income tax State-Local Tax Burdens – 2 nd (1 st is highest, 50 th is lowest) – Residents paid 12.42 percent in state &local taxes as a percentage of income in 2010. Dropped 1994-2002, then rose Location Matters: Corporate Tax Costs – Mature Firms: 41 st lowest costs – New Firms: 27 th lowest costs

4. Location Matters Business TypeNew TETRMature TETR Manufacturing (Capital-Intensive)5.9% (8th)10.6% (19th) Manufacturing (Labor-Intensive)11.8% (28th)13.7% (38th) Call Center33.5% (38th)33.1% (50th) Distribution Center56.9% (47th)46.5% (47th) Corporate Headquarters16.4% (27th)17.6% (41st) R&D Facility14.2% (19th)14.9% (37th) Retail29.9% (17th)18.6% (36th) OVERALL Average27th41st

5. Comments High corporate tax rate (9.0 percent) High income tax (5 th highest top rate) High property taxes on land and buildings High wage limit for unemployment taxes Does not apply sales or property tax to equipment – one of few states to do so Generous manufacturing incentives covering for broken tax system

6. Possible Major Changes Repeated income tax-for-property tax swaps have failed; left NJ with some of the highest income AND property taxes High tax burden makes tax cuts difficult without spending cuts Local government reform re property tax Sales tax broadening as pay-for Corporate tax & inheritance tax