The following excerpt is taken from “Where Have All the Dollars Gone?” a study into New Jersey’s economic state released by the Edward J. Bloustein School of Planning and Public Policy Bloustein at Rutgers in October, 2007. The report was written by dean James Hughes, Bloustein professor Joseph Seneca, and research assistant Will Irving.

There has been a sharp deceleration of population growth in New Jersey starting in 2002 and persisting since then. This has been primarily caused by the sharp acceleration in the number of New Jerseyans moving to other states, causing what the U.S. Census Bureau calls net internal migration losses, i.e., more people moving out of the state than moving in.

These population losses are starting to have significant economic and fiscal consequences. Because of the cumulative net outflows of people since the start of the decade, New Jersey’s 2005 aggregate adjusted gross income was reduced by $7.9 billion. This represents a direct loss to the state economy, reducing consumer expenditures, employment, and state taxes. The total annual state tax loss to New Jersey in 2005 approached $539 million. It is estimated that the cumulative effect of continued net migration losses in 2006 reduced income by more than $10 billion and state tax revenues by $680 million.

Demographic lag. The 2002-2006 period has been marked by a sharp downward trend in New Jersey’s annual population growth and a corresponding sharp upward trend in the number of people leaving the state. In 2002, the state’s population increased by 79,184. In the next four years, population growth steadily declined. By 2006, the state’s population increased by only 21,410 persons. A simple extrapolation of this trend indicates New Jersey could experience an absolute population loss by 2008.

The cumulative net migration loss between 2002 and 2006 was 231,565 people. As a result, during the first half of 2006, New Jersey dropped out of the top 10 states in the nation in terms of total population. North Carolina moved up to tenth place, while New Jersey fell to 11th.

Loss of taxpayers and income. The net internal migration estimates of the U.S. Census Bureau are based in significant part on Internal Revenue Service data that track the residence of federal tax filers. So, it is not surprising that there has been a growing net outflow of federal tax filers and their dependents from New Jersey. The number of exemptions — the sum total of federal tax filers and their dependents-serves as a proxy for net population flows.

The net outflow of federal tax returns more than doubled between 2001 and 2005, increasing from 12,027 filers in 2001 to 28,900 filers in 2005. The high net aggregate adjusted gross income loss (-$1.4 billion) in 2000 may be partly the result of a difference in the longterm capital gains of New Jersey out-migrants versus those of in-migrants. Nationally, long-term capital gains increased from $185.1 billion in 1995 to a then record high of $640.6 billion in 2000. The large net income loss could result if out-migrating New Jersey taxpayers carried more capital gains elsewhere compared with the capital gains brought into the state in that year.

The net outflow of exemptions more than tripled, increasing from 18,992 in 2001 to 58,633 in 2005. Because of the loss of these taxpayers, New Jersey’s annual direct loss of aggregate adjusted gross income as defined by the Internal Revenue Service is substantial and has been growing steadily since 2001.

Economic impact. If the state had retained the $7.9 billion in adjusted gross income that was lost in 2005 because of the net outflow of taxpayers between 2000 and 2005, the yield of New Jersey’s Gross Income Tax in 2005 would have been $236 million higher.

Similarly, the yield of the New Jersey Sales and Use Tax in 2005 would have been $217.5 million higher.

The loss of $7.9 billion in income and the related reduction in consumer expenditures from the additional income and jobs that would have existed if that income was retained in New Jersey resulted in lower employment (38,810 jobs), lower annual Gross Domestic Product ($2.76 billion), and an additional reduction in annual state sales and income tax revenues ($85.4 million).

Accordingly, the total annual state tax loss in 2005 attributable to the cumulative effects of net outmigration this decade is $538.9 million. While this is relatively small in terms of total state tax revenues (approximately 2 percent in 2005), it is a significant loss in absolute size. Moreover, it is a permanent loss and continues (or increases) each year unless net out-migration is reduced or eliminated in the future.

Based on 2006 population out-migration data, these tax losses are estimated to have increased to $680 million in 2006.

A mobile society. Between 2000 and 2005, nearly 1.1 million (1,094,081) New Jerseyans moved to other states. In six years, approximately one in eight state residents left New Jersey! At the same time, they were replaced by 883,405 people coming to New Jersey from other states. Thus, the net migration loss of 210,676 people is the result of extensive population flows into and out of New Jersey. This reflects the enormous mobility of American society.

Both the reality and the perception of an attractive versus an unattractive location can be quickly embodied in decisions to move.

Future trends and policy implications. There is no definitive evidence as to the causes behind New Jersey’s recent acceleration in outmigration.

However, improved relative economic opportunity elsewhere, New Jersey’s high housing costs, and its high overall cost of living are possible explanations.

The recent sharp slump in the housing market, with the potential for home price declines, may result in a short-term decrease in future New Jersey outmigration. Basically, if you can’t sell your house, you can’t move. Longer term, the increase in public costs, congestion, and the overall costs of living and doing business in many of the fast-growing destination states may lead to a decline in their attractiveness to New Jerseyans over time.

The entire report can be viewed online at http://policy.rutgers.edu/ news/reports/RRR/RRR_ October_2007.pdf

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