Posted on 05/14/2006 10:30:34 AM PDT by wjersey
The "millionaire's tax" is causing an exodus that it can't afford, some say. The wealthiest fund 42 pct. of its budget.
Real estate baron Alan Sagner may be one of New Jersey's most valuable endangered species.
His accountant keeps a running tally of how much money he could save by retiring to another state. Many of his friends have already left, for climates both warm and tax-friendly.
But this is one Jersey millionaire who is staying put, "millionaire's tax" and all.
"My life here is a more important investment for me than saving a few bucks," said Sagner, 85, who started selling homes in Livingston in 1947.
Not every member of his tax bracket feels the same way.
In the two years since then-Gov. Jim McGreevey slapped an 8.97 percent income tax on the 30,000 taxpayers who earn more than $500,000 a year, Haddonfield accountant Jim Evans has advised dozens of rich New Jerseyans poised to flee.
"Most people who have substantial wealth look into relocating," said Evans, who works for the firm Kulzer & DiPadova. "Some decide that New Jersey is a good place to be, and the extra cost of living here isn't too much of a burden. But some decide to go, whether it's to Florida or Pennsylvania."
The problem, State Treasurer Brad Abelow said, is that the state counts on this wealthy 1 percent of taxpayers to fund a whopping 42 percent of the state budget - up from 29 percent before the millionaire's tax.
The state has no more than anecdotal evidence that its millionaires are leaving. Real numbers showing tax trends won't be available for several more years.
But the millionaire's tax - or half-millionaire's tax, as some accountants more accurately call it - has already given the state treasury headaches.
Last year, the 8.97 percent tax collected $1 billion above expectations, allowing lawmakers to scrap proposed tax increases.
Yet last week, the state acknowledged a less pleasant surprise. The treasury's predictions were $500,000 too high - the first sign that the state could indeed be seeing an exodus of its millionaires.
"Even before we saw those numbers, we have had a growing concern that our most important tax source rests in so few taxpayers' hands," Abelow said. "We're making a bigger and bigger bet on a small group of people making more and more money and staying just where they are.
"And whether we like it or not, these people have other choices."
Abelow should know. He spent 17 years at Goldman Sachs and was a junior partner when Gov. Corzine, then chairman of the investment banking partnership, engineered the 1998 stock sale that transformed the banking partnership into a public company. The transaction made a fortune for each partner.
The treasurer this summer is moving his family from Manhattan to Montclair, where he, too, will pay the millionaire's tax - and the state's notoriously high property taxes.
"It's not a question of whether these people should pay," Abelow said. "It's a concern about how much further we can push this population."
Some wealthy New Jerseyans have already been pushed to Pennsylvania, where they can pay the state's 3.07 percent flat income tax and keep their summer home at the Shore, said Reynold Cicalese, a Cherry Hill accountant.
The switch from New Jersey's old 6.37 percent top income tax rate to the 8.97 percent rate seemed to be the tipping point, he said.
"During this tax season, people seemed to really take notice of the new rate," Cicalese said. "When you realize you're roughly going to pay almost 6 percent more to live in New Jersey, it makes it a real easy decision."
Other New Jerseyans move to Florida, which has no state income tax - and no estate tax, either. It's a long-standing tradition for New Jerseyans to move to Florida as they retire, but accountants such as Haddonfield's Smith say rich residents are now moving at earlier ages.
One of South Jersey's most recognizable millionaires, South Jersey Democratic power broker George E. Norcross III, recently bought a $10.9 million home in Palm Beach. Friends and colleagues say they don't expect Norcross, who has a young child, to switch his residency anytime soon.
But some New Jerseyans who already own a place in Florida don't change their lifestyle much; they just switch the state where they file tax returns.
It's these taxpayers whom New Jersey may soon scrutinize more closely.
New York has a sophisticated tax-enforcement program that routinely audits former taxpayers who may have only partially moved out of state. The top income tax rate for the state is 6.85 percent, and New York City charges an additional 3.64 percent income tax.
"We seek to establish a paper trail for how you're spending your time," said Michael Bucci, a spokesman for the New York Division of Taxation. "If you claim no one is at your house, then who is making those phone calls? Why is the electric bill so high?"
New York accountants say state residency audits, which they describe as formidable, also demand E-ZPass and credit-card records.
Abelow said he is examining New York's efforts "very closely," with an eye toward stepping up enforcement in New Jersey.
New York's auditors went after him when he worked for Goldman Sachs in Beijing, something that "seemed horrible then, when I was on the other side, but doesn't sound so bad now," Abelow said with a laugh.
Anticipating the state's next move, estate lawyer Gerald Darling of the firm Archer & Greiner recommends that his relocating clients vote in their new state, switch their driver's licenses, redirect their charitable giving, and stop serving on the boards of New Jersey nonprofits and other organizations.
Livingston's Sagner said he just couldn't take those steps, which would mean giving up his Jersey identity.
"I have friends who have done it," he said. "But I'm a believer that those of us who have made our good fortune here should stick with it."
New democrat trend, but 9% swing would have me in Florida.
Have you ever been to Florida? Yes,the taxes are low...but from March to November the heat and *humidity* will choke ya.
Ayn Rand would have loved this. May NJ tax itself into the poorhouse.
McVey
You will pay...or else.
Actually these ex-Goldman officials appointed by Corzine are talking a lot more sense than any other Democrat in recent NJ history.
At least they are acknowledging that the current tax policy is unsustainable. I think Corzine's recent move to boost the sales tax (which obviously is broad-based) may be a step away from the "soak the rich" Socialist nonsense of former Democrat administrations.
After all, all these ex-Goldman officials now running the government... they are all multi-millionaires themselves.
I live in NYC and these politicians have no clue. Our minimum wage has priced out labor in rural NY state, which is emptying out. Much of the financial industry is slowly heading to NC or other parts. There is growth, but there is starting to be a hallowing out. I already pay top bracket here and am not happy about it at all. Once the work dries up, Ill leave town and leave these socialists to finish turning the place into Detroit.
Of course, NJ just did vote in Gov Goldman Sachs. Will they get smart and change his name to Florio?
This is en example of why Federal taxes are so undesirable. If a state raises taxes too high, you can simply leave because you have a choice whether or not to stay there. If the Fed taxes are raised too high there's no escape.
Good.
I hope rich New Jersyeans continue to come to Florida (paradise on earth).
I am in the residential real estate business, and that means more buyers.
In the words of Nelson Muntz, "Ha-ha!"
California is trying to adopt this policy, Proposition by Proposition. When enough people get wise to that, they'll simply declare a Fiscal Emergency as cover for "temporarily" rescinding Prop 13.
Wealth creation by individuals is a bad thing to most on the Left. I'm sure NJ will be better off without those people, right? It is a beautiful state, too bad.
New Jersey needs to look at what its role models from the past have done. East Germany, for example. Just build a big wall with barbed wire on top and armed sentries. Problem solved.
"New York's auditors went after him when he worked for Goldman Sachs in Beijing, something that "seemed horrible then, when I was on the other side, but doesn't sound so bad now," Abelow said with a laugh."
Yeah, dude, that is definitely a knee slapper. There is no hope for NJ taxpayers so long as their public officials have that attitude.
Oh I forgot you first have to change your name to Mohammed then the demo/socialists will no longer allow your records to be searched.
KoRn:
Not any more. I spend some time at a conference in the Netherlands this fall and the Dutch papers were full of talk about the flight of the rich out of their country. Seems it is reasonably easy to move your base with our electronic communication possibilities. The big investors, think Rupert Murdoch, don't have to stay any place. Of course the people they leave behind starve and then vote against the remaining rich and loot them and then they leave and then . . . .
McVey
New York has a sophisticated tax-enforcement program that routinely audits former taxpayers who may have only partially moved out of state. The top income tax rate for the state is 6.85 percent, and New York City charges an additional 3.64 percent income tax.
"We seek to establish a paper trail for how you're spending your time," said Michael Bucci, a spokesman for the New York Division of Taxation. "If you claim no one is at your house, then who is making those phone calls? Why is the electric bill so high?"
New York accountants say state residency audits, which they describe as formidable, also demand E-ZPass and credit-card records.
Abelow said he is examining New York's efforts "very closely," with an eye toward stepping up enforcement in New Jersey.
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Good Lord!!
Get OUT of these two toilets, New Jersey and New York, and do not look back.
Run, don't walk.
Sam:
By all accounts Rhodesia (oops) Zimbabwe is a beautiful place too. I wonder if NJ has realized that they are running a sophisticated parallel to Zimbabwe.
Sadly, they will get what they deserve. And I do not see John Galt approaching the podium.
McVey
nah, couple of months thats all
Excellent point. Whether they have "probable cause" or not that you are trying to commit the crime of tax evasion, the idea that they can just quietly call the electric company, the phone company, your bank, your credit card company, et al, pore over all your records, and one fine day show up at your NY/NJ doorstep with a big folder and a smug grin and start playing This Is Your Life is almost terrifying.
Cash is king!
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