Find us on Google+

NJ Governor Takes a Beating for Tax Cuts

March 18, 2010 · 18 comments

New Jersey Governor Chris Christie (R) has taken some lumps for his hard nose approach to spending cuts in an efforts to salvage the state’s budget. In his brief stint, Gov. Christie has stood up to teacher’s unions, wealthy municipalities and transit – without too much fuss to date. Property tax rebates are disappearing and other taxes are going up. And yet, in a bad economy, there’s been surprisingly little grumbling as taxpayers seem to appreciate that there’s enough hurting to go around.

Until this week.

When Gov. Christie revealed his budget plans, which included painful spending cuts all around, both Republicans and Democrats alike appeared surprised to see tax cuts… for the rich. Gov. Christie’s budget failed to extend the recent increase in the state’s top income tax rate, initially put into place by then Gov. Jon Corzine (D). The result is that the top 2% of NJ taxpayers will face a reduced rate in the upcoming tax year while other taxpayer rates stay the same. The cost in lost revenue? About $1 billion.

Yikes.

Christie’s response to the criticism from the Democrats? “If they wanted it so badly, they could have had it.” The Governor was referring to the fact that the increase could have been made permanent or extended for a longer period of time when it was first enacted (shades of the federal estate tax, anyone?).

So now, of course, the finger pointing begins. Is Christie to blame for screaming sacrifice and then giving the wealthiest 2% a break? Or is Christie right that any increases should have been extended before now?

Similar Posts:

{ 16 comments… read them below or add one }

1 Tious March 19, 2010 at 12:09 am

I give the man credit for doing what most Republicans don’t do and that is ACTUALLY cut spending.

Sure some will cut it here or there but it is so painfully stupid to cut taxes then refuse to cut spending anywhere close to what is needed

Sadly, NJ is so in the hole that his spending wasn’t nearly enough to offset the losses they will get from the cuts

2 Brad March 19, 2010 at 9:34 am

This is typical short sighted Republican nonsense. Make stupid decisions like this and blame the Democrats. Support the rich and destroy the middle class. Don’t regulate emissions because air and water are not important. Make the rich richer and they will create more jobs.
Yeah, right! I hate to tell you, but the rich will just buy bigger yachts and pay immigrant workers to build them. Meanwhile, the poor, uneducated masses will watch them sail by on the undrinkable water in the river they live next to under the bridge.

3 The Biz of Life March 19, 2010 at 6:28 pm

As the stupid Democrats in my state of Maryland proved if you raise taxes on the rich they take their money elsewhere. Capital goes where it is treated best….. who woulda thunk it! As the WSJ reported: “Instead of the state coffers gaining the extra $106 million the politicians predicted, millionaires paid $100 million less in taxes than they did last year — even at higher rates.” ;-)

I applaud Gov. Christie for trying to clean up the train wreck that is NJ. He is one of those rare leaders who has the courage to take the tough, but right path to start cleaning up a corrupt state government. The louder people scream over losing their sweetheart deals, the better job he is doing. The nations needs thousands more like him instead of a bunch of whiny, nannified, entitlement kids running things.

4 Kevin Fl Greer March 20, 2010 at 4:43 am

The thinking here is to retract one of the incentives for high income taxpayers to leave the state. At a top marginal rate of 8.97%, my guess is that wealthy NJ taxpayers don’t feel they are somehow not paying their fair share (particularly when one considers the expansion of the public sector employment and benefits over the past decade).

Not sure about the analogy to the federal estate tax either. From a substantive, practical, and procedural history, I’d say it’s an apples to oranges comparison. And even if it weren’t, I’m not sure it’s relevant to Christie’s comment (however flippant it might have been).

Finally, whatever lumps he may be taking, he’s also getting some props. Check out:

http://online.wsj.com/article/SB10001424052748704743404575127851689870446.html?mod=WSJ_hps_sections_opinion

5 Kelly March 20, 2010 at 8:19 am

Kevin, the FET, procedurally, is very similar. In both cases, there was an opportunity for a permanent (or significantly longer) tax change. In both instances, the acting administration (Bush for FET, Corzine for the NJ PIT) opted not to make the changes permanent. In both cases, the trailing administration (Obama for FET, Christie for NJ PIT) opted not to renew the changes. And in both cases, the “argument” for not renewing the changes revolves around pointing fingers at the other party and say “You could have done it if you wanted.” I think it’s very much the same thing.

6 T-Bone March 20, 2010 at 1:10 pm

Brad – NJ top rate is 10.75%, and it is a gross income state. How much is enough? It’s time to clean up NJ, and stop the waste and corruption. There is no need to soak the states most productive residents.

7 Kevin F. Greer March 20, 2010 at 3:01 pm

The procedural reasons the FET reductions/repeal were not made permanent in 2001 were twofold. First, the cuts had to sunset so as to meet the requirements of PAYGO. Second, even in the absence of PAYGO, the Republicans wouldn’t have had the votes to get permanent legislation through the Senate.

I suppose you could say New Jersey has a kind of de facto PAYGO given that it can’t print money, but this is not so much a procedural obstacle as it is simply being forced to grapple with reality. New Jersey also does not have a filibuster, and only a simple majority of both houses is required to pass a budget.

So when Cristie points out that the previous administration could have made the 10.75% rate permanent, he is correct. By contrast, anyone suggesting George Bush and Republican majorities in Congress could have made the estate tax repeal permanent would be incorrect from a procedural standpoint.

It’s probably also important to point out that Corzine’s tax increases were sold politically as only being a temporary fix to close a budget gap, whereas the 2001 legislation gradually phasing out the estate tax reflected Bush’s longer term view on tax policy.

But yes, regardless of what side you’re on, it seems somewhat flippant to dismiss the opposition’s concerns in the manner Cristie has.

8 Kelly March 20, 2010 at 5:11 pm

Kevin, the Reps and Dems are having the same argument over the FET – the “you could have made it permanent” type argument. There were a number of years post-2001 that Congress could have pushed a repeal through but like in NJ, there were practical reasons why it didn’t happen. Frist made estate tax repeal a priority and then had to back away because of the cost of the war. Every year during the Bush administration, there were a number of “let’s make the estate tax repeal permanent” type bills – none of them got very far.

My point is simply that it’s easy to do nothing with a bill that sunsets and then point fingers. That’s what they’re doing in NJ and it’s exactly what will happen this year in Congress.

As to Corzine’s argument about the temp nature of the increases, I think we all know how that goes. As NJ’s neighbor, we’re having that same argument in Pennsylvania…

9 Kevin F. Greer March 20, 2010 at 5:55 pm

Congress couldn’t have pushed a permanent repeal through, or it would have. The last serious attempt was in 2006 before Bill Frist retired (it was his pet issue), but there wasn’t enough support to overcome a potential filibuster. The New Jersey legislature doesn’t have the filibuster, so they could have made the tax increase permanent without any bipartisan support. Procedurally, it’s an apples/oranges comparison.

So again, Cristie is correct when he says the Democrats could have made the tax increase permanent. Conversely, to say Republicans could have made estate tax repeal permanent is incorrect, as they couldn’t overcome the filibuster threat. To the extent Democrats are making that argument, they’re being disingenuous.

An interesting side note on the estate tax repeal debate of 2006 is that it was less of a Republican/Democrat thing than it was a basic philosophical issue. The actually was more than token Democrat support, but moderate Republicans (most prominent among them Olympia Snow) refused to support Frist’s bill.

Just speculating, but my sense is that what he’s actually suggesting is that it would have been political suicide to have made those tax increases permanent. And while I don’t have any empirical evidence to support it, I’d imagine New Jersey “lost” more than a few high income residents this year.

As for how the estate tax debate will play out this year, it will be interesting to see how this plays out. If I had to guess, I’d say your conclusion is correct that there won’t be a fix, but I suspect the reason won’t be gridlock of the finger-pointing kind.

For the life of me, I never understood why so many tax lawyers, CPAs, and even policy wonks were so convinced–as recently as last November–that permanent legislation would be in place before this year’s temporary repeal. Given the tiny amount of lost revenue, this issue is really only of consequence to that small number of people impacted. On the flip side, it tends to be one of those lightning rod issues for the class warfare crowd. Little economic impact, but politically divisive. Without broad consensus (not impossible if they can agree on an exemption number), the current Congress would be foolish to monkey with it this year.

The current political climate may be a complicating factor. If I’m a conservative pro-repeal legislator, I might be less likely to compromise on anything less before I have a better sense of the composition of Congress next year. Conversely, if I’m a moderate Democrat, I’m not sure reaching a consensus on something as insignificant to most voters as the estate tax will necessarily save my job.

I think I’ve inadvertently turned this into an estate tax discussion. My apologies, but there just aren’t enough people willing to discuss this stuff with me on weekends…or any other time, for that matter (and I’m a tax lawyer).

10 Kelly March 20, 2010 at 6:07 pm

My worry on the estate tax side is more of a practical issue – the huge capital gains issue for one year. I am sure that *something* will happen in 2011 since even if Congress does nothing, that’s really something due to the sunset. But the wacky capital gains issue? Gah, already a huge thorn in our sides on the estate tax level.

11 Kevin F. Greer March 20, 2010 at 6:21 pm

I’ll spare you my rant as to why capital gains shouldn’t be taxed in the first place. : )

My suspicion is that any kind of reform will likely dispense with (or at least modify) the stepped up basis rules, so the capital gains issue will likely persist to one degree or another. Anything to make it more complicated than it needs to be.

Then again, if it weren’t complicated, tax lawyers would have a lot less to do.

12 Chris April 16, 2010 at 10:22 am

I believe that the Democrats (under Corzine), and subsequently the Republicans when Christie took office, made the best choice not to keep the increased tax for the high income earners.
What Christie is doing is cutting funding by 5% across the board for ALL municipalities. That’s a good thing.
The bad thing is that the NJEA, and as of late several other unions are stating that Christie’s plan will cut spending for children and education. That is a false statement. It CAN cause that to happen. Of course, that is presuming that the upper administration is unwilling to lock down any pay increases, AND most likely cut their own salaries.
The thing is this is what is being done in the “real world”. Meaning in the private sector (i.e. non-gov’t).
I also know that this is being done in the gov’t sector in DE.
My question would be why aren’t the politicians and/or the well paid gov’t employees willing to take a cut to help offset this necessary budgetary constraint? Aside from their oversensitive fear that they’ll believe that because they went with a cut this year that they’ll have to do it next year.

I think that what has to be examined from a fiscal perspective is what are the gov’t workers receiving in return for their service? If they are full time (and in some cases if they are part time), they receive excellent medical care at little to no cost. Although Christie is asking the teachers to allow a 1.5% cut in their pay to help pay for their healthcare. But this is soooo far less than what most of the private sector has to pay for their healthcare.

And I know several people who are not receiving a salary increase, or have taken a pay cut (some by as much as $10,000 on an income of $70,000) that live in the state of NJ.

13 Ed September 4, 2010 at 12:48 pm

2% property tax cap?!
What CrAP!
My P/T’s went up 7%.
Smoke and mirrors from our so called leaders.
Chtistie a one term wonderless?

14 John A September 4, 2010 at 4:36 pm

Soaking the rich is counterproductive – they lready pay a huge percentage of NJ’s tax and a much higher percentage than adjoining Pennsylvania. Maryland is losing itsrich folks (who provide jobs). Maryland can take it better because that have the burgeoning hoards of new government workers to soak while NJ doesn’t. People like Rush Limbaugh moved out of NY because of their taxes, and with the Internet and remote work, it is likely to accelerate down the income line as well. For the Northeastern States to make it, they have to make it palatable and reduce the number of people not working. Beyond that, we need national leadership to cut the absurd Federal spending enacted by Pelosi and Reid with the signature between applause by Barack Obama. We need more business people in power and fewer totally inexperienced (and not as bright as they think) academics who never ran a thing in their lives.

15 Chris September 5, 2010 at 9:56 pm

Corrections for Ed are noted below:
2% property tax cap?! – Yes.
What CrAP!
My P/T’s went up 7%. – Please visit your local mayor or BOE (Board Of Education) members to see why it went up that much before the 2% P/T cap went into effect.
Smoke and mirrors from our so called leaders.
Chtistie a one term wonderless? – Not a chance … at least I hope!

FYI, the tolls will be going up again relatively soon (possibly next year). That will be courtesy of the infamous John Corzine who wanted the legislation passed in the NJ Senate, and signed the legislation to raise the rates in the future. So please don’t be an idiot and try to blame Christie for that next year.
Oh, here’s the link: http://www.nj.com/news/index.ssf/2008/01/corzine_finalizes_highway_toll.html
In case you don’t read the article, the title is “Corzine finalizes highway toll increase plan of 50 percent-plus” and dated January 8th, 2008. The body mentions “A person with direct knowledge of the plan confirmed Statehouse reports of a 50 percent toll hike every four years mixed with annual cost of living increases.”

16 justme50d September 20, 2012 at 5:49 pm

Unless Christie has an effective way to pay for the tax cuts, he shouldnt even go there with it. This state is hurting enough.

Leave a Comment

{ 2 trackbacks }

Previous post:

Next post: