Only nine days after proposing to eliminate the property tax deduction allowed under New Jersey’s personal income tax, New Jersey Gov. Jon Corzine (D) partially backed down from the proposal.
Typical of the reaction to the proposal was that of state Sen. Kevin O’Toole (R-Cedar Grove), a member of the state’s Senate Budget Committee, who said, “Governor Corzine has abandoned the middle-class taxpayer.”
Corzine’s budget also was criticized for relying too heavily on one-shot revenues and spending cuts that were not true cuts but instead spending deferred to future years.
Spending Delayed, Not Denied
“Over $2 billion of the proposed budget relies on federal money that won’t be available for the next budget,” said Paul Tyahla, vice president for the Commerce and Industry Association of New Jersey. “The governor claims to be cutting spending by reducing the contribution to the state public employees’ pension systems. But this contribution has to be made eventually. It’s not a true spending cut. In total, this budget relies on at least $4 billion of revenues and spending cuts that won’t be available next year.”
Corzine unveiled his FY2010 budget on March 10. He proposed to spend $31.9 billion, approximately $1.3 billion less than the current year’s budget. He also acknowledged the state expected to collect only $28.6 billion in taxes and fees.
To make up the $4.6 billion difference between current spending and expected revenues, Corzine proposed to use $2.1 billion in federal “stimulus” aid to support current expenses, enact approximately $1 billion in tax hikes, and cut current spending by about $2.5 billion.
Less than a month later, Budget and Finance Officer David Rosen of the state’s nonpartisan Office of Legislative Services told the Senate Budget Committee, “New Jersey finds itself in the most significant revenue downturn in its modern history.”
$606 Million Shortfall Projected
Rosen projected New Jersey would bring in $606 million less in revenue than the Corzine administration claimed.
The shortfall is expected even though Corzine proposes to increase the tax rate on incomes over $500,000 from the current 8.97 percent to 10.25 percent, giving New Jersey the second-highest income tax rate in the nation. The governor also proposed to eliminate the ability of all income tax filers, except senior and disabled citizens, to deduct property taxes from their income tax liability. Corzine also proposed to increase taxes on cigarettes and alcohol, excluding beer.
Early criticism of Corzine’s proposed budget focused on what the Star-Ledger newspaper called the “double whammy”—taking away the property tax deduction and reducing or eliminating the property tax rebate program.
It quickly became apparent there was little support for that idea. Corzine modified his plan so households earning up to $150,000 could continue to deduct property taxes.
Using Internal Revenue Service data, Americans for Tax Reform noted that between 1997 and 2007, New Jersey experienced a net domestic population loss of 335,339 people. According to ATR, one-third of that loss occurred after 2005, when New Jersey last increased its income tax. In total, ATR concluded, the population loss decreased new Jersey’s income tax base by nearly $13 billion.
ATR President Grover Norquist said, “Corzine’s budget plan will turn the exodus of tax refugees into a flood. This plan will not only hurt New Jersey taxpayers, destroy jobs, and cause businesses to relocate across state lines, it will turn New Jersey into a depopulated ghost town.”
Cigarette Tax Revenue Decline
Corzine’s intention to increase the cigarette excise tax from $2.575 to $2.70 per pack, the nation’s second-highest state tax, also drew criticism.
After the most recent cigarette tax increase, enacted in July 2006, cigarette tax revenues fell for two consecutive years, and cigarette sales for the current fiscal year suggest revenues will fall again.
“Given the facts, Corzine’s assertion that another rate hike will increase revenues simply isn’t credible,” observed Jerry Cantrell, president of the New Jersey Taxpayers Association.
The governor and legislature are bound by the state constitution to agree on a budget by the start of the next fiscal year on July 1.
Gregg M. Edwards ([email protected]) is president of the Center for Policy Research of New Jersey.