New Jersey’s roads and bridges are in dire need of repair, and the funds to cover maintenance are beginning to run dry. In 2013, 66 percent of New Jersey’s roads were in poor or mediocre condition and 36 percent of the state’s bridges were structurally deficient or obsolete, according to the American Society of Civil Engineers. The Reason Foundation found New Jersey’s highway system to be the nation’s most expensive to operate and maintain and ranked it the 48th least cost-effective in the country.
Over the last few years the New Jersey Legislature has considered increasing the state’s 14.5 cent gas tax, which has remained unchanged since 1988 and is the second-lowest in the nation. The most recent debate over transportation funding is over a tax swap proposal that would increase the state gasoline tax while eliminating or reducing estate and inheritance levies. Tying these two taxes together is a mistake. Gasoline taxes are becoming increasingly ineffective and should not be considered alongside estate taxes, which require separate reforms.
Estate taxes are levies on property transferred from a deceased person’s estate to relatives or other parties. New Jersey is one of only two states imposing both an estate tax and an inheritance tax, making it one of the most expensive states for estate transfer. Estate and inheritance taxes are a form of double taxation that stifles investment and entrepreneurship, reduces economic growth, discourages savings, increases the cost of capital, raises interest rates, and brings in relatively little revenue. Lowering or eliminating the estate tax would create jobs and promote savings and investment.
The estate tax is an example of double taxation and places an undue burden on family-owned businesses and farms. Critics also note high estate and inheritance tax rates have forced many families to leave New Jersey for more tax-friendly states.
According to an article in The Bergen Record, New Jersey collects more than $700 million per year from its estate and inheritance taxes, and the article notes this is more than what the state collects from gasoline taxes or real estate taxes. New Jersey also sets its threshold for paying the estate tax lower than any other state in the nation. New Jersey citizens must pay the estate tax beginning at a value of $675,000, which is far below the $5.34 million threshold for federal taxes. Tax rates on inheritances in New Jersey are not much better. The state’s inheritance tax rates can reach 16 percent, among the highest in the country. Several states in the region, including New York and Maryland, have commenced efforts to reduce their estate taxes. New Jersey would become even less competitive and further encourage high-income citizens to leave the state.
Increasing the gas tax is equally problematic. In recent years, the rise of fuel-efficient cars has decreased motor fuel tax coffers and disproportionately shifted the burden to low-income drivers, a group that typically owns older, less fuel-efficient vehicles. According to Americans for Prosperity, households with incomes of less than $50,000 per year currently spend more than 20 percent of their after-tax income on energy. Although gas prices are comparatively low today, there are no assurances they will remain this way, whereas the gas tax hike would be permanent.
In addition, governments have increasingly diverted funds from this tax away from its intended purpose in order to balance budgets or fund unrelated projects.
As the rise in fuel efficiency continues, motor fuel tax revenues will continue to decline. States and the federal government will have to explore more modern and efficient ways to fund road construction and traffic infrastructure. These include privatizing roads and establishing toll systems. In several cities, transportation agencies are using congestion pricing – varying toll prices based on congestion – to manage demand and reduce traffic problems.
Given the significant differences between the two taxes, New Jersey legislators should consider the estate tax and the gas tax separately. Estate taxes should be lowered, and gas tax revenues should be devoted entirely to road and bridge construction and maintenance.
The following documents examine estate and motor fuel taxes and their economic effects.
Ten Principles of State Fiscal Policy
https://heartland.org/policy-documents/ten-principles-state-fiscal-policy
Heartland Institute President Joseph Bast and Richard Vedder, professor at the Ohio University, list the principles states should consider when formulating and evaluating tax and expenditure policies. Especially relevant to the estate tax are the first two principles: the importance of keeping taxes low and avoiding penalties on earnings and investment. The estate tax is designed to extract wealth from families with a high level of accumulated savings. These savings are invariably located in banks and investments that provide capital to the economy, which means the estate tax hinders economic production and prosperity.
Alternatives to the Motor Fuel Tax
http://heartland.org/policy-documents/alternatives-motor-fuel-tax
The Center for Urban Studies at Portland State University evaluates the potential for alternatives to motor fuel taxes. The report also analyzes the economic and technological problems those selecting alternative revenue sources must address.
Designing Alternatives to State Motor Fuel Taxes
http://heartland.org/policy-documents/designing-alternatives-state-motor-fuel-taxes
Writing in Transportation Quarterly, Anthony M. Rufolo and Robert L. Bertini consider the future of motor fuel taxes in a world where additional fuel-efficient vehicles become available, and they report on the economic effects of increased use of road pricing as a substitute for fuel taxes.
NJ Legislators Trying to Make Estate Tax a Lot Less Certain
http://watchdog.org/171997/estate-tax-new-jersey/
Brad Matthews examines legislation under consideration in New Jersey to phase out the state’s estate tax over five years.
A Push to Reform How N.J. Taxes Heirs
http://www.northjersey.com/news/a-push-to-reform-how-n-j-taxes-heirs-1.1072688
John Reitmeyer, reporting for The Bergen Record, discusses New Jersey’s estate and inheritance tax system, how it works, and efforts to reform it.
Research & Commentary: Congestion Traffic Pricing
http://heartland.org/policy-documents/research-commentary-congestion-traffic-pricing
Congestion pricing, an alternative to gasoline taxes, uses market principles to address traffic congestion. Under congestion pricing, operators of a road charge a variable price based on congestion, allowing the operator to manage demand and limit congestion. Heartland Institute Senior Policy Analyst Matthew Glans examines several proposals for implementing pricing systems to alleviate traffic congestion.
Raising Gas Taxes Won’t Fix Our Bridges
https://heartland.org/policy-documents/raising-gas-taxes-wont-fix-our-bridges
In the aftermath of the I-35 bridge collapse in Minneapolis, Adrian Moore of the Reason Foundation argues increasing fuel taxes should not be the only response to state transportation funding problems. Moore writes, “First we must examine how we spend transportation dollars now. Then we maximize the value out of those dollars. Finally, the last step is to address the need for additional revenue.”
The Moral Case Against the Death Tax
http://heartland.org/policy-documents/moral-case-against-death-tax
This Cato Policy Analysis by Edward McCaffery is a primer on the basics of the death tax. McCaffery finds the tax fails to achieve most – and quite possibly any – of the objectives its supporters promote.
How the Death Tax Kills Small Businesses, Communities – and Civil Society
http://heartland.org/policy-documents/how-death-tax-kills-small-businesses-communities-and-civil-society
In this Heritage Foundation Backgrounder, Patrick Fagan argues the death tax is a direct assault on a community’s economy, undermining small businesses – a primary source of sustenance for communities.
Growth Consequences of Estate Tax Reform: Impacts on Small and Family Businesses
https://heartland.org/policy-documents/growth-consequences-estate-tax-reform-impacts-small-and-family-businesses
Douglas Holtz-Eakin and Cameron T. Smith of the American Family Business Foundation examine the effects of a higher estate tax rate on asset accumulation, small and family businesses’ cost of capital, investment outlays, desire to hire, size of payrolls, and jobs. In each instance, raising the estate tax does significant harm.
Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this subject, visit Budget & Tax News at http://news.heartland.org/fiscal, The Heartland Institute’s website at http://heartland.org, and PolicyBot, Heartland’s free online research database at www.policybot.org.
The Heartland Institute can send an expert to your state to testify or brief your caucus; host an event in your state; or send you further information on a topic. Please don’t hesitate to contact us if we can be of assistance! If you have any questions or comments, contact Logan Pike, Heartland’s state government relations manager, at [email protected] or 312/377-4000.
Matthew Glans joined the staff of The Heartland Institute in November 2007 as legislative specialist for insurance and finance.
