Moran: N.J. lets wealthy executives live in Pennsylvania, at a big cost
Published: Sunday, November 20, 2011, 9:04 AM Updated: Sunday, November 20, 2011, 10:55 AM
By Tom Moran/ The Star-Ledger
At the end of the working day, you can see the helicopters lift off from Merck and Johnson & Johnson, their happy executives aboard, heading west to their homes in Pennsylvania.
William Weldon, the CEO at J&J, has a helicopter pad near his home in Bucks County. At Merck, a helicopter shuttles executives back to Doylestown Airport almost every day — a sensible move given that the firm’s top three executives all live in Pennsylvania.
The reason they are flying the coop each night is simple: They are taking advantage of a quirk in the law that lets them pay income taxes to the state in which they choose to live, not the state in which they work. So they shopped for homes in Pennsylvania.
This arrangement is unusual, and it costs New Jersey’s Treasury $50 million a year, by a conservative estimate.
“It is the craziest thing ever,” says Joseph Seneca, a respected economist at Rutgers University who almost never uses such unequivocal language. “I don’t think you want a state policy that encourages people to leave your state. And this one explicitly does that.”
Don’t blame the executives. None of them, at either company, would discuss this. But they didn’t make these rules or lobby for them. They are just responding rationally.
By basing their companies in New Jersey, they can tap the state’s skilled and educated workforce. But choppering home every night means they can pay a flat tax of 3 percent to Pennsylvania, rather than roughly 9 percent to New Jersey.
When you consider that Weldon earned nearly $90 million over the past three years, that is quite a savings. Two of his three most senior deputies live in Pennsylvania as well.
“The more this happens, the more subsidy New Jersey gives them,” says Dan Levine, a former deputy treasurer. “It’s completely ludicrous.”
Levine pushed to change the agreement in 2003 and convinced then-Gov. James E. McGreevey to go along. Ending it requires no legislation, or agreement from Pennsylvania. Either governor can end it by writing a letter.
But Levine soon found that it’s not so simple. While the Treasury would benefit, middle-class residents of South Jersey who work in Pennsylvania would pay more.
The reason is that Pennsylvania’s code is more regressive. Wealthy people pay much more under New Jersey’s tax code. But middle-class people pay more under Pennsylvania’s. So Democrats from South Jersey revolted at the move to rescind the agreement.
“We jumped all over McGreevey about this,” says Senate President Stephen Sweeney, then a freshman senator from Gloucester County.
And so we are stuck with a system that is full of jarring inequities. Suppose Weldon’s secretary earns $65,000, for example. She or he would pay a marginal tax rate that is more than double the rate Weldon pays.
Another one: A fellow executive of Weldon’s who happens to live in New York state would not be covered by this quirky agreement. The rules on that side of our border are conventional, so New Jersey would get the first tax bite.
“You can have two workers in New Jersey, sitting side by side and earning the same salary, but they are taxed differently,” Seneca says.
One more thing: Because New Jersey is home to more high-end jobs, we are losing a lot more money than Pennsylvania is.
“We have the worst of both worlds,” Seneca says.
The agreement was struck in 1976, when the tax codes were not so dramatically different. Levine says it was just an attempt to cut red tape. It meant those who commute across the border would have to file returns to only one state, and that the state Treasury staffs would have to review only one return. No big deal.
Now it is, though. When McGreevey tried to rescind this, the estimate was that New Jersey was losing $37.5 million. Levine now says it is at least $50 million, and probably much higher. As more biotech firms settle in Central Jersey, the losses are likely to grow.
And if anything, the politics have gotten tougher. South Jersey is stronger these days, given Sweeney’s role and the hidden hand of George Norcross, the state’s most powerful boss. And while Gov. Chris Christie would not comment on the issue, it seems unlikely he would agree to something that would raise the tax burden on commuters to Pennsylvania.
So the choppers will continue to fly. The secretaries will continue to pay higher rates than the CEOs. The commuters to New York will still get slammed in a way their brothers from the south do not.
“Weldon isn’t doing anything wrong,” Levine says. “Those are the rules. What’s outrageous are the rules themselves.”
© 2011 NJ.com. All rights reserved.
Published: Sunday, November 20, 2011, 9:04 AM Updated: Sunday, November 20, 2011, 10:55 AM
By Tom Moran/ The Star-Ledger
At the end of the working day, you can see the helicopters lift off from Merck and Johnson & Johnson, their happy executives aboard, heading west to their homes in Pennsylvania.
William Weldon, the CEO at J&J, has a helicopter pad near his home in Bucks County. At Merck, a helicopter shuttles executives back to Doylestown Airport almost every day — a sensible move given that the firm’s top three executives all live in Pennsylvania.
The reason they are flying the coop each night is simple: They are taking advantage of a quirk in the law that lets them pay income taxes to the state in which they choose to live, not the state in which they work. So they shopped for homes in Pennsylvania.
This arrangement is unusual, and it costs New Jersey’s Treasury $50 million a year, by a conservative estimate.
“It is the craziest thing ever,” says Joseph Seneca, a respected economist at Rutgers University who almost never uses such unequivocal language. “I don’t think you want a state policy that encourages people to leave your state. And this one explicitly does that.”
Don’t blame the executives. None of them, at either company, would discuss this. But they didn’t make these rules or lobby for them. They are just responding rationally.
By basing their companies in New Jersey, they can tap the state’s skilled and educated workforce. But choppering home every night means they can pay a flat tax of 3 percent to Pennsylvania, rather than roughly 9 percent to New Jersey.
When you consider that Weldon earned nearly $90 million over the past three years, that is quite a savings. Two of his three most senior deputies live in Pennsylvania as well.
“The more this happens, the more subsidy New Jersey gives them,” says Dan Levine, a former deputy treasurer. “It’s completely ludicrous.”
Levine pushed to change the agreement in 2003 and convinced then-Gov. James E. McGreevey to go along. Ending it requires no legislation, or agreement from Pennsylvania. Either governor can end it by writing a letter.
But Levine soon found that it’s not so simple. While the Treasury would benefit, middle-class residents of South Jersey who work in Pennsylvania would pay more.
The reason is that Pennsylvania’s code is more regressive. Wealthy people pay much more under New Jersey’s tax code. But middle-class people pay more under Pennsylvania’s. So Democrats from South Jersey revolted at the move to rescind the agreement.
“We jumped all over McGreevey about this,” says Senate President Stephen Sweeney, then a freshman senator from Gloucester County.
And so we are stuck with a system that is full of jarring inequities. Suppose Weldon’s secretary earns $65,000, for example. She or he would pay a marginal tax rate that is more than double the rate Weldon pays.
Another one: A fellow executive of Weldon’s who happens to live in New York state would not be covered by this quirky agreement. The rules on that side of our border are conventional, so New Jersey would get the first tax bite.
“You can have two workers in New Jersey, sitting side by side and earning the same salary, but they are taxed differently,” Seneca says.
One more thing: Because New Jersey is home to more high-end jobs, we are losing a lot more money than Pennsylvania is.
“We have the worst of both worlds,” Seneca says.
The agreement was struck in 1976, when the tax codes were not so dramatically different. Levine says it was just an attempt to cut red tape. It meant those who commute across the border would have to file returns to only one state, and that the state Treasury staffs would have to review only one return. No big deal.
Now it is, though. When McGreevey tried to rescind this, the estimate was that New Jersey was losing $37.5 million. Levine now says it is at least $50 million, and probably much higher. As more biotech firms settle in Central Jersey, the losses are likely to grow.
And if anything, the politics have gotten tougher. South Jersey is stronger these days, given Sweeney’s role and the hidden hand of George Norcross, the state’s most powerful boss. And while Gov. Chris Christie would not comment on the issue, it seems unlikely he would agree to something that would raise the tax burden on commuters to Pennsylvania.
So the choppers will continue to fly. The secretaries will continue to pay higher rates than the CEOs. The commuters to New York will still get slammed in a way their brothers from the south do not.
“Weldon isn’t doing anything wrong,” Levine says. “Those are the rules. What’s outrageous are the rules themselves.”
© 2011 NJ.com. All rights reserved.