Facing the "Fiscal Facts"
Posted May 29, 2009

The non-partisan Tax Foundation this week released its Fiscal Facts on New Jersey's current financial crisis and Governor Corzine's proposals to deal with it. And while the numbers 7.1, 11.8, 10.75, and 50 might not mean anything to you now, read on, and you'll see their disturbing significance.

7.1

According to an April estimate by the National Conference of State Legislators (NCSL), New Jersey's budgetary shortfall for Fiscal Year 2010 stands at $7.1 billion, leading NCSL to note, "This is the most dire fiscal situation in the state's recent history." Unfortunately, since NCSL's analysis, the situation has become even direr, and lower-than-expected April income tax revenue has now pushed the projected shortfall to $9 billion.

11.8

At 11.8 percent, New Jersey's state and local tax burden is the highest in the nation. The Tax Foundation calculates this percentage by dividing the total amount of taxes paid by residents by the total income of the state. This goal, as the Foundation notes, is to answer the question, "What percentage of their income are the residents of this state paying in state and local taxes?" And in New Jersey's case, the answer is a whopping 11.8 percent - without counting federal income taxes.

10.75

Speaking of taxes, at 8.97 percent, New Jersey also has one of the highest top income tax rates. Only Vermont (9.5), Rhode Island (9.9), California (10.55), and Hawaii (11.0) are higher. But this may soon change - and not for the better. In addition to eliminating property tax rebates, which we discussed in last week's Musings, Governor Corzine has also proposed hiking the top income tax rate to 10.75 percent - while adding new 8 percent and 10.25 percent brackets.

As the Tax Foundation notes, however, "[D]ouble-digit state income taxes have been tried before and failed as fiscal policy." For example, looking at the "millionaire's tax" (really the "half-millionaire's tax") New Jersey implemented several years ago, the Foundation notes that while the tax "raised revenue for the state and helped reduce a budget shortfall, it also reduced the state's overall economic output and harmed its ability to grow during and after the recession." Moreover, as we've noted before, burdened by high taxes, many New Jerseyans have spoken with their feet and left the state in search of more taxpayer-friendly pastures.  Indeed, this is something New Jersey should have anticipated. As the Foundation explains, ". location decisions of highly mobile entrepreneurs are sensitive to state income tax rates.."

50

And when it comes to entrepreneurs, locations outside of New Jersey are looking better and better. Our state ranks dead last in business friendliness, a ranking determined by the Tax Foundation based on 112 variables grouped into five different component indexes: corporate tax, individual income tax, sales tax, unemployment tax, and property tax.

Business unfriendliness, income tax rates, property tax burdens, and the state budget deficit - not to mention the state sales tax, which is among the highest in the country - all combine to place an astronomical financial burden on New Jersey taxpayers and more importantly from our perspective, New Jersey's working families. Indeed, as the Tax Foundation notes, "It's hard to imagine New Jersey could do much worse."

But we can do better.

Recently, California voters soundly rejected five ballot measures designed to "bail out" the state through means including extending tax increases and allowing the state to borrow against future revenues. "Thanks but no thanks," voters said.

While we don't have the benefit of a direct ballot vote on many of our own fiscal woes this year, we do have an indirect vote in terms of whom we elect to office. If we want to see real change in our state's financial climate and in our own tax burdens, we must elect leaders committed to implementing sound fiscal policies instead of oppressing already overburdened taxpayers and working families with the costs of government's financial waste and mismanagement. For far too long, both political parties have looked the other way when it has come to tightening the fiscal belt. Let's hope this will change soon!

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