The Grassroots Corner September 30th, 2024

NEW JERSEY DROPS 6 SPOTS

           Jamie Grill-Goodman, writing in “Commerce,” the publication of the Commerce and Industry Association of New Jersey, noted that New Jersey has dropped six spots in CNBC’s America’s Top States for Business in 2024. The Garden State went from Number 19 to Number 25. How did this happen?

            To be sure, this little state has a lot going for it. Bill Noonan, Chief Business Development Officer of Newark’s Choose New Jersey, observed that New Jersey has an educated workforce with, perhaps next to Massachusetts, more PhDs and engineers per square mile than any other state. Moreover, Noonan notes that New Jersey is within one day’s drive for truckers to one-third of the US population.

            CNBC picks up on these strengths, adding quality of life, education, and access to capital among its ten criteria. So, with all these advantages, why did the Garden State fall so far down?

            Let’s look at New Jersey’s lowest scores. Number One is business friendliness at 49^th  place. That score is one place worse than it was in 2023. Only Mississippi was less business-friendly. Next comes the cost of doing business at 42^nd place, a two-place improvement over last year, but there is still plenty of room for improvement there. Then comes the cost of living, at 37^th place, seven places worse than last year. This score is no surprise. The cost of living should be higher in the fourth smallest but most densely-populated state in the US, with two major cities next door. Finally comes workforce at 30^th place. Despite the level of education, the workforce category showed the most significant decline by 14 places.

            According to a February 2023 report from the Sunlight Policy Center of New Jersey, New Jersey has one of the worst outmigration problems in the nation. On page 2, the report noted that retirees flee New Jersey, and wealthy residents migrate to other states, taking their wealth with them.

            Audrey Lane, writing for the Morristown think tank Garden State Initiative on April 16, 2024, notes that the number of Fortune 500 companies headquartered in New Jersey fell from 22 in 2006 to 15 in 2021. New Jersey lost a third of its largest employers.

            What could New Jersey do to improve its CNBC ranking and outmigration problem? The first step would be to follow initiatives already underway in Nebraska, Alabama, and Georgia and enact a state-level FAIRtax. A state-level FAIRtax would replace the corporate business tax, which had risen to 11.5% several years ago, and the personal income tax, which had topped out at 11.75%. The state-level FAIRtax would also assimilate the statewide sales tax of 6.625%. Whether the FAIRtax would absorb cigarette and gasoline taxes remains open to discussion.

            A state-level FAIRtax would also lower the cost of education, where New Jersey dropped two places in the CNBC survey.

            A 2007 study by the Massachusetts-based Beacon Hill Institute (Table 3 on Page 17) shows that a state-level FAIRtax with a rate of 5.52% would allow New Jersey to replace its sales, income, and death taxes and still provide a prebate to negate the regressive nature of ordinary sales taxes. This study needs updating but shows a trend.

           As much as we wish a state-level FAIRtax would replace local property taxes, among the highest in the country, if not the world, this project may have to await Round Two after the economic tide starts to turn. Nevertheless, a state-level FAIRtax would be great news for New Jerseyans. Image the economic reversal! Businesses would have a second and third look at the Garden State and come back in. Companies would bring wealth and opportunity back to the Garden State. The workforce would return. The Sunlight Policy Center and Garden State Initiative would have to write sequels.

           CNBC would rank Garden State Number One in each of its ten major categories of Top States for Business.

           I would love to hear your ideas on how a state-level FAIR tax would improve your state’s CNBC ranking.

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