Enterprise Value Tax Would Cost NJ Taxpayers More than $340 Million

Policy, Taxation — By on January 25, 2012 at 12:20 PM

President Obama’s Plan for Economic Growth and Deficit Reduction contains a provision, known as the “Enterprise Value Tax”, that would increase the federal taxation on a sale of any business structured as a partnership from a capital gains rate of 15% to the ordinary income rates that now reach as high as 35%. Under the tax increase, entrepreneurs and family members owning small businesses, other than family farms, would no longer qualify for the 15% capital gains treatment upon the sale of their business if the entity held any form of “specified assets” such as partnership interest, interest income, investment real estate or securities.

The adoption of an Enterprise Value Tax would be especially damaging to New Jersey’s businesses and economy for the following key reasons:

(1) A large portion of New Jersey’s small businesses are structured as partnerships, 172,000 in 2012.

(2) The imposition of an EVT will potentially extract $349 million annually from New Jersey’s economy, working capital that would be better used by New Jersey’s current and future partnerships to expand an already anemic economy.

(3) The EVT will negatively impact New Jersey’s top industries: information, real estate, and finance. These three industries represent $149 billion (31 percent) of the New Jersey economy. The EVT will extract nearly $251 million from these three industries.

(4) From a fiscal federalism standpoint, states that piggyback on the federal income tax code might also adopt the EVT; thereby, compounding the negative economic impact of this change in tax policy.

For these reasons, New Jersey’s state and local policymakers, as well as its Congressional delegation should oppose a federal EVT due to the economic damage it would inflict on New Jersey’s businesses and citizens.

The impact by industry is included in the table below. To read the report in its entirety, click here to download it. Frequently Asked Questions are answered by clicking here.

About the Author

J. Scott Moody (Adjunct Scholar) has worked as a Tax Policy Economist for over 13 years.  He is the author, co-author and editor of 154 studies and books.  He has testified several times before the House Ways and Means Committee of the U.S. Congress as well as various state legislatures.  He has been interviewed by countless newspapers and radio and television stations.  His work has appeared in Forbes, CNN Money, State Tax Notes, Portland Press Herald, New Hampshire’s Union Leader, Hartford Courant, The Oklahoman and Albuquerque Journal.

His professional experiences includes a positions as Senior Economist at The Tax Foundation, Senior Economist at The Heritage Foundation, Vice President of Policy and Chief Economist at The Maine Heritage Policy Center, Research Fellow at The Oklahoma Council of Public Affairs, and Senior Fellow for Budget and Tax Policy at the Illinois Policy Institute.

Additionally, Scott was recently appointed by Maine’s Governor to the prestigious Consensus Economic Forecasting Commission.

Scott received his Bachelor of Arts in Economics from Wingate University (Wingate, N.C.).  He received his Master of Arts in Economics from George Mason University (Fairfax, VA)


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