NCPA - National Center for Policy Analysis

Beacon Hill Institute Analysis: Tax Cuts Helped New Jersey Grow

October 1, 1997

New Jersey\'s economy benefited substantially from personal income tax cuts enacted in 1994 and 1995, according to a recent analysis.

  • In 1994, the state reduced personal income tax rates from a range of 2 percent to 7 percent down to 1.9 percent to 6.55 percent.
  • In 1995, it dropped rates further to 1.7 percent to 5.68 percent.

Using its State Tax Analysis Modeling Program (STAMP), researchers at the Beacon Hill Institute found the following direct effects, over and above any other factors contributing to state economic expansion:

  • More than 25,000 new jobs were created -- cutting the unemployment rate by 0.7 percentage points.
  • Most of the jobs created pay in the mid-range -- around the statewide average of $32,815 in 1994 and $37,115 in 1997.
  • Capital spending in the state increased by more than $2.1 billion.

Researchers say the effective average state tax on personal income is 2.71 percent in 1997, but would have been 3.08 percent without the tax reductions. Net cumulative revenue losses to the state government from the tax cuts were $514 million for the 1994 to 1997 period.

Source: "New Jersey's 1994 and 1995 Personal Income Tax Cuts Led to 25,000 New Jobs, $2.1 Billion in New Capital," BHI FaxSheet, October 1997, Beacon Hill Institute for Public Policy Research, Suffolk University, 8 Ashburton Place Boston, Mass. 02108, (617) 573-8750.


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