This September, New Jersey Governor Phil Murphy enacted a budget deal with his legislature that increased state taxes on incomes over $1 million. As the country’s second-richest state, this is a big win for progressive taxation. Governor Murphy explains what the tax revenue will go to, how it won’t hurt businesses or cause wealthy people to leave the state, and why it’s the right thing to do in the midst of a national economic crisis .
Phil Murphy is the Governor of New Jersey. He was the U.S. Ambassador to Germany from 2009 to 2013.
Twitter: @PhilMurphyNJ and @GovMurphy
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Further reading:
Deal reached in N.J. for ‘Millionaires Tax’ to address fiscal crisis: https://www.nytimes.com/2020/09/17/nyregion/nj-millionaires-tax.html
Why these millionaires are staying put despite a new tax on them: https://www.nytimes.com/2020/10/02/your-money/wealthy-millionaires-tax-states.html
Who pays? A distributional analysis of the tax systems in all 50 states: https://itep.sfo2.digitaloceanspaces.com/whopays-ITEP-2018.pdf
Do millionaires migrate when taxes are raised? https://inequality.stanford.edu/sites/default/files/media/_media/pdf/pathways/summer_2014/Pathways_Summer_2014_YoungVarner.pdf
N.J. will borrow $4.5 billion as pandemic pain hits states: https://www.nytimes.com/2020/09/24/nyregion/new-jersey-coronavirus-budget.html
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Nick Hanauer:
The governor of New Jersey, he has just enacted a millionaire’s tax to try to take some of the terrible pressure off the middle class.
Governor Phil Murphy:
So anyone earning a million dollars or more, we’re asking you to pay a few pennies more, then we’ll put every dime of that into the middle of class. If you care about the middle class, it’s an obvious policy step, but guess what? It’s good for the wealthy folks as well. It’s a better, stronger society state, and that’s good for everyone.
Speaker 2:
From the home offices of Civic Ventures in downtown Seattle, this is Pitchfork Economics with Nick Hanauer, the podcast that reveals the trick in trickle-down economics.
Nick Hanauer:
I’m Nick Hanauer, founder of Civic Ventures.
David Goldstein:
I’m David Goldstein, senior fellow at Civic Ventures.
Nick Hanauer:
We have a very fancy guest today, the governor of New Jersey, governor Phil Murphy. But first, we have to offer a big thank you to our listeners, because over 400 of you all over the US used our tool to send the RAND report that we featured to your elected leaders. And just to remind you, the RAND report is this marvelous piece of economic research that showed, among other things, that $2.5 trillion per year has been redistributed upward from the bottom 90% of Americans to the top 1% of Americans. It shows that for the median full-time worker who now earns $50,000 a year, if they had been held harmless by the last 40 years of trickle-down economics, instead of earning 50, they would earn someplace between 90 and a hundred thousand dollars a year, and it’s so important to get that word out, and so thank you to you all who forwarded it on, and if you didn’t do it, you can still do it by texting RAND to 67076 on your phone, or go to civicaction.com/rand and follow the prompts. It’s super fast and you can do it right now on your phone. And it’s so important to get the word out.
David Goldstein:
And I tried the text version of this and it’s really neat. It’s kind of fun.
Nick Hanauer:
Yeah.
David Goldstein:
How well it works.
Nick Hanauer:
Super cool.
David Goldstein:
So let your congresspeople know and give them permission to do the right thing come January.
Nick Hanauer:
Yeah. So Goldy, we’re lucky to get to talk to the governor, and he, I think, is doing a really good job in New Jersey, but we’re going to zoom in to something that he just accomplished, something that we wish the governor and the legislature in Washington state would accomplish, is he has just enacted a millionaire’s tax to try to take some of the terrible pressure off the middle class in the state of New Jersey.
David Goldstein:
Right, and to be clear, New Jersey has long had an income tax, unlike Washington, but what they did was they raised that tax by just two percentage points on incomes over $1 million, and partially that’s to address the budget crisis that they’re facing during the pandemic, and partially it’s to try to rebalance New Jersey’s tax code to make it less regressive and less of a burden on the middle class, and honestly, that’s a problem nationwide. We like to think in America that we have a progressive tax system, and as you’ve repeatedly pointed out, that’s actually no longer completely true with the federal income tax. Rich people like you are actually paying a lower rate than folks in the middle class now, and it certainly isn’t true in most States when it comes to state and local tax systems. Most states are at best flat, if not slightly regressive. The national average, the bottom 20% of households pay an effective state and local tax rate of 11.4%. The middle 20% of households pay 9.9%, and the top 1% pay 7.4%. So that is an upside down tax code nationwide at the state and local level, which just exacerbates the flattening and reversing of our tax system at the national level.
Nick Hanauer:
Right? Well, it’ll be fun to talk to Governor Murphy. He was an executive with Goldman Sachs. That’s where he sort of built his career, but was also the US ambassador to Germany under President Obama from 2009 to 2013.
Governor Phil Murphy:
Hey everybody, I’m Phil Murphy. I’m the 56th governor of the great state of New Jersey.
Nick Hanauer:
We couldn’t be more pleased to have you with us today, and we can talk about a variety of things, but we wanted to narrow our focus on the tax on millionaires that you guys just passed. So tell us what you did and why you did it.
Governor Phil Murphy:
First of all, it’s very good to be on with both of you. I’m a big fan, so I’m honored to be with you. And we don’t begrudge people’s success, I want to say that upfront. Whether you’re a wealthy individual, whether you’re a large corporation, we want more of each in New Jersey. So that’s an important point I want to get off my chest, but even in peace time, even pre-pandemic, we also want a fair deal. I got elected to stand for a stronger, fairer New Jersey that works for not just some, but for everybody, and as part of that was to ask the folks who were the wealthiest among us and the big corporations, again, not to vilify them, but to basically help us rebuild our middle class and the dreams of those, as I was by the way, growing up in a working poor family, that someday hopes to get into the middle of class, and yet again, to folks who are in poverty who are trying to climb out of it. And I succeeded a guy who did not feed and nourish the middle class. I’ll be diplomatic and leave it at that.
Governor Phil Murphy:
But the middle class had been hollowed out. So on things like … we stopped … New Jersey, by the way, got dealt a very particular hand way back when, and our two big anchors are talent and location. So that’s the hand we’re dealt. I don’t think it’s political as to one party or the other, but I got elected to play the damn hand, and so from day one, that’s what we’ve been doing. And so we had asked, right out of the get-go, the wealthiest among us to pay a few pennies more on their top dollar. We got partial success in our first budget, and in this now our … it’s more than our third, because we had a couple of budgets this year, but our third big budget, we ultimately succeeded.
So anyone earning a million dollars or more on that top dollar, the million dollar and up, we’re asking you to pay a few pennies more, and we’ll put every dime of that into the middle of class, whether it’s helping us invest in the number one public education system, by the way, yet again ranked in America, our healthcare, our infrastructure, or next year after everyone gets their tax returns in, we’re going to actually send … depending on what your income is and how many kids you got, you’re going to get literally a check if you’re in the middle of class as part of the proceeds from this millionaire’s tax. So I think it’s all in all a good idea in peace time, nevermind in the war that we’re in with this pandemic right now.
Nick Hanauer:
Governor Murphy, you’re from the finance world. You’re an ex Goldman Sachs executive, I believe.
Governor Phil Murphy:
That’s correct.
Nick Hanauer:
I’m from the world of entrepreneurs, and so I think it’s worth reminding our listeners that while I think this tax gets up to 10 and a half or 11% or something like that.
Governor Phil Murphy:
Yep.
Nick Hanauer:
That may sound like a lot, but the national tax code is upside down, because people who are making $50 million a year aren’t making 50 million in salary taxed at the 37% top tax rate. The vast majority of that income will almost certainly be either dividends or capital gains taxed at half that rate, at 20%. And so this higher tax rate at the state level on very, very high incomes doesn’t unfairly punish very wealthy people. It more normalizes the tax rate on them, given essentially the perversity of the federal standard, of the federal approach.
Governor Phil Murphy:
Yeah, I think I that’s right, and by the way … and I don’t make light of this, so again, I’m not trying to vilify anybody. We have less than 20,000 people in the state that will pay this tax. So think about that for a second, less than 20,000. We have 9 million residents. So I put it even … and by the way, everyone said, “Well, they’re all going to leave.” We haven’t found one bit of evidence that suggests that that’s actually true. There is some evidence that they pick where they’re going to die, but there’s no evidence that we’ve found that if you have an income tax, that it dictates where you’re going to live, particularly when we pride ourselves in being the number one state in America to raise a family.
We haven’t figured out all the secret sauce here. We inherited a huge structural deficit, we inherited a hollowed out middle-class, so we’re on a journey, but what does drive people to move is our property taxes in New Jersey. So if you’re a retired … think about this for a second. We do have the number one, second year in a row, I’m proud to say we beat out the state I was born in, Massachusetts, for the number one public education system in America.
Nick Hanauer:
Right.
Governor Phil Murphy:
But on average, 53% of your property tax bill in New Jersey goes to public education. So if you’re thinking about this for a second, you’re retired, you’re therefore on a fixed income, you own a home, and Johnny and Sally have graduated from high school, there is a legitimate discussion … overwhelmingly, by the way, people in the middle class, where folks say, “You know what, how’s this math still working for us? 53% of this property tax is going to something that we’ve got no horse in that race,” and so that’s why a big part of our agenda is property tax relief. I want to make sure folks know that.
The other thing that’s happened since the pandemic … and by the way, we wish New York and Philadelphia nothing but success, because in the North, in so many respects, as they go, we go, and in the South, as Philly goes, we go. Not quite to the same extent, but they both matter to us. There’s a pretty clear, at least temporary rejection of a vertical working environment, vertical living environment, very urban environment in exchange for that suburban home with the front yard. So we’re seeing houses right now, still up and down the state fly off the market. So the actual opposite is happening. People are coming into New Jersey at all income levels, largely quality of life, great public schools, infrastructure that works, et cetera.
Nick Hanauer:
So what will be the uses of the revenue that you’re raising on this new tax?
Governor Phil Murphy:
Yep, so it’ll be a combination … I alluded to this earlier. It’ll be a combination of helping us fund programs that we’re already all in on. I’d say at the top of that list is record levels of public education funding, both K through 12, as well as continue, even in the teeth of this awful pandemic and the economic follow-up, a continued expansion of pre-K, making higher education more affordable. So I mentioned talent and location are our two anchors, and it’ll go … in addition to that, there will literally be rebate checks next summer, right directly into the pockets of folks who are in the middle class. There are other elements of our middle-class agenda, but none is more important than public education, and that delivering of the check is a new wrinkle on this idea, which in part, I have to say, got us over the goal line with our legislative colleagues.
Nick Hanauer:
That’s great.
David Goldstein:
Do you think you could have passed this without the pandemic and the budget crisis it created?
Governor Phil Murphy:
You know, I think we would have. We had partial success, I mentioned in our first budget. So it’s been the case that if you have income over $5 million, you’ve already been paying these few extra pennies. I think, guys, we would’ve gotten there, and I’m maybe naive about this; it is so overwhelmingly an obvious smart policy step if you care about the middle class, and secondly, if that weren’t enough, this is pre pandemic, guys. I think it polled in New Jersey in the mid to upper seventies, including a majority of Republicans. So to my way of thinking, you cannot defy gravity forever. So I think we would’ve gotten it done, but there’s no question the pandemic, the God awful pandemic probably got it with more certainty and perhaps sooner than it otherwise would have.
Nick Hanauer:
So you may not know, but Washington state has the most regressive tax system in the nation. I mean it’s a very progressive place on the whole. We have led on a lot of really interesting, bold policy ideas, like the $15 minimum wage and other things, but we have stalled, and Democrats have stalled around this issue of higher taxes on the wealthy. And if you were going to give other governors and legislative bodies advice about how to talk about this and how to move it, what would you say?
Governor Phil Murphy:
Yeah, I’m not sure I’ve got all the answers, because it took a lot longer, frankly … even though I’m thrilled we got a done, it took us a lot longer to get it done, and I’m a big Jay Inslee fan, so I have to get that off my chest.
David Goldstein:
As are we.
Governor Phil Murphy:
I knew you are, yep. But listen, I think … I’ll go back to what I said a couple of minutes ago. If you care about the middle class, it’s an obvious policy step, and secondly, we rarely run … I literally can’t remember the last poll I read. I really don’t even care about them, but the fact of the matter is it’s broadly accepted. So that tells me, without knowing the details in Washington, it tells me there’s a gap somehow between the legislative process and the public will. I would guess the public will in Washington –
Nick Hanauer:
Correct.
Governor Phil Murphy:
I would guess the public will there is like the public will in New Jersey. It’s a proudly progressive state that does care about the middle class and have done a lot for it. And I think chipping away at it, and I hate to sound so basic in my answer, but don’t give up. Chip away at it and debunk the myths. And again, that’s not to say that we’re vilifying anybody, but you’ve really got to push back. When people say folks are going to leave, you have to be strong in your answer that you know what, there’s no research anywhere that suggests that happens.
People leave because the total proposition is not acceptable, and I’ll speak for ourselves. The number one public education system in America, one of the best healthcare systems in America, all in on fixing NJ transit, roads, bridges, rails, tunnels, quality of life, save the children, ranks as the number one state in America to raise a kid. It’s that total proposition to say, “Okay, I get it. It’s not the lowest cost place by far to live, but it’s the best value for money. It’s the best place in America to raise a family,” and again, I can’t say … I don’t know the Washington details, but my gut tells me you could make a similar case in the state of Washington.
Nick Hanauer:
Yeah, of course, of course we could.
David Goldstein:
By the way, I would like to suggest a federal law that says you can’t make Florida your official residency for tax purposes, unless you live there during the summer.
Governor Phil Murphy:
Oh boy. Okay, I’m going to file that one away.
Nick Hanauer:
You can’t govern to the lowest common denominator, and we have to find a way to inspire people to want to contribute to the common good, and for those few who don’t want to, well, what are you going to do? This is a hard question, but if you had to design the perfect state tax system, what would it be? And let me just say that there is no perfect system, but what’s your ideal tax system for a state like New Jersey? How is it structured?
Governor Phil Murphy:
That’s a great question.
Nick Hanauer:
Like if you could just write it, if you could just decide what it was going to be –
Governor Phil Murphy:
Yeah.
David Goldstein:
Benevolent dictator question here, with no political constraints.
Governor Phil Murphy:
Exactly, benevolent dictator. I love that. So clearly you’d have less property taxes. I mean that’s the thing, I’ve already said this, you’d have less property taxes. I’m not a wealth tax guy. A property tax is in fact that, because you’re paying it on your biggest … what is in most American families your biggest asset. I’d probably lean more heavily on income taxes and less heavily on property taxes. We have a sales tax, which is reasonably significant. That’s regressive, but it’s also a big … it’s the source of a lot of the much needed revenues.
Nick Hanauer:
Yeah.
Governor Phil Murphy:
So that’s one that, in a perfect world, if you could find … I will say this, by the way, not only did we inherit a state that had structural deficits in the middle class that was hollowed out, we also inherited a state that didn’t grow, and so too often, the revenue debates in New Jersey sort of assume a static sort of level of pie. In other words, the pie is looked at as though we can’t figure out smart ways to grow that pie, and so getting the damn thing growing again has been a big … I won’t bore you with all the things we do to put into that.
Nick Hanauer:
Yeah.
Governor Phil Murphy:
And I’d say lastly, smart incentives. And so I say smart because … and real quick, I inherited, again, a state that had an open-ended incentive program that ended up … we did a whole … our comptroller did an independent study. It basically benefited the wealthy and well connected, and it didn’t do the stuff that you would hope it would have done. So we’ve proposed the new generation, including something … I’ll give you one example, an evergreen investment fund, which is a fancy title to jumpstart the venture capital reality in our state. So if we’re so darn proud of the talent we’ve got, we still need the oil in the early stage startup reality that we have not historically had, or at least have not had our fair share of it. We do really well, for the most part, with the big companies. We’ve got a ton of fortune 500 companies that call New Jersey home and we’re proud to have them, but we’ve done a lot less well in … as opposed to incenting to get a big company to come here, let’s put incentives in place that are smart to get them born here.
Nick Hanauer:
Yeah, those incentives … I mean Washington state has made some horrible mistakes with these –
David Goldstein:
Boeing.
Nick Hanauer:
Boeing. We shoveled the money into Boeing for no reason. It was just a catastrophe, and I know you know that these things are usually extortion schemes.
David Goldstein:
Right.
Governor Phil Murphy:
Boeing ultimately left, right?
Nick Hanauer:
Correct, yeah.
David Goldstein:
I mean they took the tax breaks and then moved the jobs out anyway.
Nick Hanauer:
Yeah.
Governor Phil Murphy:
Yeah.
David Goldstein:
So I have this opportunity here. I’ve got a couple … normally I just have one really rich guy on the line. Now I’ve got two of them. Could you tell me how a couple … both of you, how a couple percent increase in your income tax is going to change your life?
Governor Phil Murphy:
Well, I’ll speak for myself. It won’t change it at all.
David Goldstein:
Yeah.
Governor Phil Murphy:
And I literally mean that. I mean I’m not trying to be cavalier about it, but I won’t change it one bit.
Nick Hanauer:
And I agree, but I would like to say, I mean I don’t … guys like the governor and myself often get attacked when we advocate for high taxes and people say stupid things like, “Well if you love them so much, then why don’t you pay,” and blah, blah, blah. And I just want to make it clear, I don’t know about the governor, but speaking for, I do not want to pay higher taxes, in the same way that I do not want to exercise daily, frankly, or to eat my vegetables or to go to the dentist or a bunch of other things, or to get my vaccinations. I don’t particularly like to wear a mask, but I do have the capacity to connect to these relatively unpleasant tasks to both the greater good and the future.
Governor Phil Murphy:
Yep.
Nick Hanauer:
And I just think that paying a reasonable amount of tax as a wealthy person has … I mean the span of history shows this is an essential ingredient in living in a high functioning society. There are no high functioning societies on planet earth where rich people don’t pay taxes. So just you got to do it. It’s not like … you got to do it.
Governor Phil Murphy:
Listen, I think Nick, the other thing I’d say … and by the way, again, I want to be emphatic. I want to lower property taxes, but that’s overwhelmingly a middle-class reality. When I say overwhelmingly, 99 point something percent. I was the US ambassador to Germany under the Obama/Biden administration. I’ve lived in Germany as a private sector person as well. I also will say this; it’s in our enlightened self-interest to do this.
Nick Hanauer:
Yes.
Governor Phil Murphy:
Because if what I’ve said is true, and it is true in New Jersey, every dime of this will go into strengthening the middle class. Does that help the middle class? It sure does. Does it help the dreams of the folks who grew up as I did, looking up hoping to get in it some day? Absolutely. But guess what? It’s good for the wealthy folks as well.
Nick Hanauer:
Of course it is.
Governor Phil Murphy:
It’s a better, stronger society state, and that’s good for everybody.
David Goldstein:
And more customers, more customers.
Governor Phil Murphy:
Yep, you betcha.
David Goldstein:
We’d like to ask you our closing question, which is why do you do this work?
Governor Phil Murphy:
I will tell you … maybe this is something else I should have associated with talking about tax equity. I think we’ve seen over the past eight months something else happening, and that is people are being reminded that government, when it’s done right, is existentially important. It’s an essential element of our lives. We have long graduated from Ronald Reagan’s government’s not the answer, it’s the problem. When it’s done right, especially in my time as governor, which is coming toward three years, the past eight months … and by the way, we paid an enormous toll. I know you guys know this, but over 14,000 confirmed fatalities, over 16,000 if you include probables, but we have also saved a lot of lives. And I’m not patting myself on the back, I’m just suggesting that would government works, when you take public health deadly seriously, you can transform or maybe even save lives, and if that’s part of the job description, even if I’m only one team member of it, that is probably the most gratifying thing I’ll ever do in my life.
Nick Hanauer:
Well governor, we could not be more pleased to have had you on. So great to get you in conversation about this, and great work out in New Jersey. Congratulations.
Governor Phil Murphy:
You are the best. Thanks. I’m honored to be out with you guys. Good luck to both of you, and again, thanks for having me.
David Goldstein:
I got to tell you, Nick, having grown up in Philadelphia, watching New Jersey politics for a very long time, oh my God, is it refreshing to have a mensch in the governor’s mansion.
Nick Hanauer:
Exactly. Honestly, Goldy, I do think it is helpful to be relatively wealthy as the governor is and to have that Goldman Sachs pedigree if you’re going to lead the charge on raising taxes on wealthy people, because I do think that it gives you the standing to make the arguments in a way that lots of other folks struggle with. So I think that that’s really, really cool. And I do think, also though, that we are in a national crisis. This is as close to a real war as the country has been to in some time, and it shocks me that at this moment, so many people don’t want to pay more, when the country and your fellow citizens so obviously need you. And it just makes me want to ask these people what’s up? What kind of person isn’t willing to put their shoulder to the wheel in a time of crisis like this? I find it just shocking.
David Goldstein:
Are you questioning their patriotism, Nick?
Nick Hanauer:
Yes. Well, I’m questioning their humanity. Forget patriotism. I mean it’s just shocking that you could not care, and by the way, be super open about the fact that you don’t care enough about what’s happening in your country and what’s happening to so many families around that you wouldn’t make the slightest sacrifice to help. By the way, given that it will have zero impact on your life. There will be zero trade-offs made. It’s just really quite amazing. I do think that as a society, neo-liberalism gave people permission to act like that and still have social standing. Our society gave people a break who took those positions and didn’t shame them, but I think we have to come back to a world in which it’s impossible to hold your head up in polite society if you’re not willing to actively participate in making the society better by paying your fair share of taxes. I think that’s really important. Anyway, we’re big admirers of Governor Murphy. He’s put New Jersey on the path to $15 minimum wage, he’s expanded paid family leave and insured paid sick days for all workers. He’s doing a lot of great work.
David Goldstein:
New Jersey can be a butt of jokes sometimes, sitting between the Philadelphia and New York media markets, but my God, what a great state. This is what a high functioning state is like, and that’s why it’s one of the wealthiest in the country and has one of the highest incomes.
Nick Hanauer:
Yeah. It will be fun to see what the next years bring.
David Goldstein:
On the next episode of Pitchfork Economics, we’ll talk with economist Ioana Marinescu about what happens to American workers and the American economy when the unemployment benefits run out.
Speaker 2:
Pitchfork economics is produced by Civic Ventures. If you like the show, make sure to subscribe, rate, and review us wherever you get your podcasts. Find us on Twitter and Facebook at Civic Action and Nick Hanauer. Follow our writing on medium at Civic Skunk Works and peek behind the podcast scenes on Instagram at Pitchfork Economics. As always from our team at Civic Ventures. Thanks for listening. See you next week.