In New Jersey, a debate over competing tax-cut plans, and whether any of them would help

Gov. Christie says New Jersey is doing well enough that he wants a tax break for everyone, brushing aside critics who say his revenue projections are too rosy.
Gov. Christie says New Jersey is doing well enough that he wants a tax break for everyone, brushing aside critics who say his revenue projections are too rosy. (MEL EVANS / Associated Press)
Posted: May 07, 2012

One of Gov. Christie's most colorful quotes last week had nothing to with the presidential race, Bruce Springsteen, or the fat jokes hurled at him at last weekend's White House Correspondents' Dinner in Washington.

When Christie said Monday that he would rather "rearrange my sock drawer tonight" than debate Assembly Majority Leader Lou Greenwald (D., Camden), he was talking taxes, specifically their differing plans to cut them.

Economics and tax experts interviewed for this story differed on the merits of the three tax-cut plans under review in Trenton. One argued that the state cannot afford a tax cut. Others said none of the plans would make much of a difference to residents.

But all agreed that the arguments had more to do with politics than with economics.

"If a tax expert was asked to do this in a politically neutral way - if that's even possible - he wouldn't come up with any of these plans," said Michael Livingston, a tax-law expert at Rutgers-Camden. "A tax expert would look more at an overhaul of the whole state tax system.

"It's not being driven by what the experts think; it's being driven by politics."

The most startling part of Christie's January State of the State address was his plan to cut income taxes 10 percent.

Since he took office in 2009, the Republican governor has slashed budgets, made state workers pay more for pensions and benefits, and killed a plan to build a transit tunnel to New York City, arguing that New Jersey could not afford it.

Now, Christie argues that New Jersey is recovering well enough that he wants to offer a tax break to everyone.

But Christie's $32.1 billion budget for fiscal 2013 relies on overly rosy revenue projections, according to the nonpartisan Office of Legislative Services and the credit-rating agency Standard & Poor's.

The treasury department is expecting revenue to grow 7.3 percent, the largest jump since before the recession began in December 2007.

OLS puts revenue growth in fiscal 2013, which begins July 1, closer to 6.5 percent.

If Christie goes forward with his tax cut, which would be phased in over three years, the state could be left with a $537 million hole in the budget next year, David Rosen, legislative budget and finance officer with OLS, told a Senate panel in March.

Christie brushed aside Rosen's comments and S&P's analysis, saying his projections in the last two budget cycles had been right.

Democrats say Christie's plan would benefit the rich most, which, by sheer arithmetic, is true.

But that might not be a bad thing, says Joseph J. Seneca, an economics professor at Rutgers University.

"New Jersey is very dependent on high-income earners," Seneca said. "It's sending a message that New Jersey is interested in restoring its competitiveness."

Livingston agrees.

"You can always say, 'Well, let's get more money from the millionaires,' " he said. "The problem is, there aren't that many millionaires.

"The reality is that most of the investment is done by rich people. If you want to attract business, you have to lower taxes on rich people," he said. "It doesn't take a lot to move a business to Pennsylvania or to New York."

But Democrats, including Senate President Stephen Sweeney of Gloucester, don't buy that argument.

The state has given plenty of tax breaks to the wealthy in hopes of creating more jobs, yet New Jersey's unemployment rate of about 9 percent is worse than the national average, which dropped to 8.1 percent in April.

"That's trickle-down," Sweeney said with distaste, referring to the economic theory that everyone benefits when the highest earners do well. "Why do we have to give them more breaks? They've already gotten them."

Sweeney and Greenwald have proposed plans that they say would give low- and middle-wage earners a break on property taxes, which are residents' biggest concern, according to polls. The average property-tax bill in 2011 was $7,759, among the highest in the nation, according to the state.

Greenwald's plan is to offer a 20 percent property-tax credit for those earning $250,000 or less annually and pay for it by raising taxes on those who make more than $1 million a year.

Christie has vetoed the millionaires' tax twice and vowed to do it again.

Sweeney said Friday that he left the millionaires' tax out of his plan knowing it was a nonstarter with Christie.

Sweeney wants to offer taxpayers an income-tax credit based on their property taxes. Those who earn $250,000 or less a year could take an income-tax credit of up to $1,000 based on their property-tax bill.

Sweeney calls that the equivalent of a 10 percent property-tax cut. That led Christie to argue that he and Sweeney are speaking the same language.

They're not.

Under Christie's plan, once fully phased in, a household making $50,000 annually would receive an $80 income tax cut. Sweeney estimates that under his plan, which also would be phased in over three years, households earning $50,000 would receive a $600 credit. Households making $100,000 would get $275 back under Christie's plan and $800 under Sweeney's.

Christie would offer a millionaire household a tax cut of more than $7,000. Sweeney offers it nothing.

Christie said he sees room for compromise between his and Sweeney's proposals.

Sweeney introduced his bill in the Senate on Thursday.

His bill might bring some relief, Seneca and Livingston said, but until the state finds a way to depend less on property-tax revenue to fund its municipal services and schools, it's a drop in the bucket. In New Jersey, 98 percent of local taxes collected are property taxes, according to the U.S. Census.

Sweeney's bill would work like the property-tax rebates New Jerseyans have long received, except it would lock in rates so the Legislature could not reduce them in leaner years, Seneca said, adding that that could be problematic.

Sweeney welcomes that sort of rigidity.

"That's good if we tie the Legislature's hands," he said.

Gordon MacInnes, president of the nonprofit think tank New Jersey Policy Perspective, argues that the state can't afford a tax cut.

"Right now we are among the most fragile of states in terms of our bond rating," he said. "We're 11th in terms of unemployment in the nation."

But once Christie said tax cut, the Democrats followed suit, MacInnes said.

"Both branches and both parties share in the blame on this," he said. "They are using this most inopportune time to suggest reducing revenues and giving people back an amount that will be barely noticeable but which will have a negative effect on New Jersey's ability to snap back from this recession."


Contact Joelle Farrell

at jfarrell@phillynews.com, 856-779-3237 or @joellefarrell

on Twitter.

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