February 16, 2010
By Hans Dekker
A recent study by the Boston College Center on Wealth and Philanthropy reported that over the five years between 2004 and 2008, New Jersey lost almost $1 billion in charitable giving capacity as a result of a significant decline in the amount of wealth moving into the state and an increase in the amount of wealth leaving.
The Community Foundation of New Jersey along with the Enterprise Trust of the New Jersey State Chamber of Commerce sponsored the study to examine wealth rather than just income, because wealthy households are responsible for the majority of charitable giving in our state. In addition to their charitable giving, these households, while a small proportion of the population, play a valuable role as members of our civic and nonprofit community by serving as volunteers, trustees, and as role models for charitable giving for younger generations.
The study reveals a tremendous out-migration of wealth from New Jersey, remarkably evident when you look at the entire decade from 1999 through 2008. In the five years leading to 2003, New Jersey saw an in-migration of $98 billion in wealth and an increase in charitable giving of $881 million. During this time, people presumably saw New Jersey as an economically competitive state in which to live and work, bringing with them their hard-earned dollars and philanthropic ethic. Yet in the five years after 2003, New Jersey saw an out-migration of $70 billion in wealth and a decrease in charitable giving of $1.13 billion — a near total reversal of the previous trend.
All of this is to say: wealthy people moved out of New Jersey at a much higher rate than wealthy people moved into New Jersey. When the wealthy people moved out, their money and their charitable gifts went with them.
New Jersey should aspire to be the most charitable state in the nation. Much of the rich fabric that makes our state such a wonderful place to live depends on charitable organizations to provide the arts and culture, to support our hospitals, and to help those less fortunate live in one of the most expensive states in the nation. In order to achieve this, we need to examine the state’s policies to see if they encourage charitable giving and if they provide the incentives to attract and retain wealth and the charitable giving that comes with it.
There are a number of factors that lead wealthy families to decide to leave or come to New Jersey, many of which are out of our control — our sometimes miserable winter weather being one. There are, however, issues within our control that require close examination.
The Community Foundation of New Jersey has the good fortune of working with many of the accountants, wealth managers, and attorneys that work with our state’s most charitable families. In addition, we work with a large number of nonprofits as we accept charitable gifts and then make grants to our New Jersey charities including nearly $23 million to nonprofits in our communities in 2009.
From all of these groups you hear a similar refrain: we are losing many of our wealthiest donors and clients to places like Florida, North Carolina, Arizona, and Pennsylvania. When asked to diagnose the cause for this out-migration, most point to a series of tax policies that make it very expensive to live and be charitable in New Jersey.
Any serious discussion on this problem and its solution must, therefore, include a careful look at those elements of New Jersey’s tax structure that impact charitable giving. This includes the lack of a state tax deduction for charitable giving, an estate tax exemption which begins taxing a family’s life savings at $675,000 and our income tax rates including the “millionaire’s tax.” As one attorney explains, “the income tax raises the issue of leaving the state and the estate tax seals the deal.”
Tax policy is a divisive issue at both the state and federal levels. It is important, therefore, that we not confuse the federal policy debate with the New Jersey debate. Unlike with federal taxes, individuals can move out of a state to avoid its high taxes, thus depriving the state of potential revenue. Rather than pay New Jersey’s income and estate taxes, individuals are incentivized to move to other states whose highest tax brackets are significantly lower than New Jersey’s.
We encourage the governor and the legislature to look at this problem honestly and with a sense of balance as we solve the financial crisis facing the state. New Jersey is a diverse state, represented by people from all walks of life. Let’s attempt to keep a balance in our tax policy that accommodates this diversity, strengthens our charities and nonprofit organizations, and makes New Jersey a desirable state to move into, not out of.
Hans Dekker is President of the Community Foundation of New Jersey