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."
Drug dealers not collecting welfare are excluded from the stupid and rich categories of course.
I left the New York cesspool a long time ago. To New Yorkers and people from New Jersey, there is life outside the East Coast. It's better, cleaner, and less stressful. We all have one life to live. We might as well live it in a non-socialist state!
What the heck does this mean? However wrote this is a moron.
There are definitely conservatives in NJ, but what passes for a Republican in HJ would be a left of center Democrat in other parts of the country.
If you like heat, humidity, fire ants, alligators and crowds.
Is Lake Placid a cesspool? How about 1,000 Islands, New York?
Q: How much money did you make last year?
A: Send it in.
Am I reading this right? The State Treasurer was elected/appointed without ever living in the state he is treasurer of?
New Jersey is like another planet.
Nelson Muntz---very funny, speaking as a Simpsonian myself...
High taxes leads to people undereporting their income...penalizes the honest folk....
ping
I live in FL and they are welcome to come.
The only thing is, when out of staters move next to me, their first comment is something based on where are all the services they are used to? I always try to educate them this is the tax tradeoff.
In my area we actually pay to pave our own roads. To someone from NY or NJ this is astounding.
How far?
How about into PA? or MD? or even a whole other part of the country?
*This is always hazardous. I should go read the article now.
Well, that depends. Two "distant friends" (like "distant relatives" without the genes) are planning to retire early, one to Kenya, the other to the Crimea. Their portfolios, which would require them to continue working here, can sustain a very comfy lifestyle elsewhere.
One interesting thing is that socialism seems to be a natural for a tribal or primitive society, where everyone must by need work together for common survival, with a chief of some kind to direct the effort. As far as I can see, there has to be a higher form of civilization before individual freedom and personal liberty can be supported. And yet, when civilization reaches still a higher level, such as it has in the the great metropolitan areas of today, like New York of parts of NJ, the density of population means that when one individual exercises his individual freedom, the likelihood is much greater that he will impact the freedom of his neighbor. So, almost by necessity, freedoms are again curtailed and socialism again begins to gain the upper hand.
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