We revel in Schadenfreude when we hear that Governor Christie is not meeting his tax revenue forecast, but the underlying problems and consequences are more serious. An Office of Legislative Services email sent to legislators but not yet publicly released indicates, “New Jersey receipts from income and corporate taxes fell short of Governor Chris Christie’s budget targets in April.” Furthermore, in March income tax payments lagged behind projections by $35.9 million, or 6.4 percent.” Although with a rising stock market in 2011 analysts could anticipate a bump up in capital gains tax and some increased bonuses from the wealthy, the forecast was inaccurate.
Less revenue means fewer funds to meet important needs. Christie based his budget on a wildly optimistic revenue forecast as S&P and others explained. Now Christie and the legislature will have to take a second look at proposed expenditures. And the likely result will be painful for too many.
Part of Christie’s budget included the cost of a 10% across-the-board cut in personal income tax. This plan has been widely reviled as it offers a pittance in relief for most New Jerseyans but significant tax reduction for the wealthy. Democratic legislators have proposed a better and more popular plan. It provides a tax credit of 10 percent (in the Senate plan) or 20% (in the Assembly plan) for property taxes. The Democratic plan is certainly more equitable in the relief it provides. However, while individuals get a reduction in their income tax, there is little added incentive for municipalities to restrain their ever-increasing costs.
Christie erred in his budget forecast so there may well be further undesirable budget cuts, and any form of income tax reduction may now be in jeopardy. Furthermore, neither the Governor’s nor the Democrats’ income tax reduction proposals will make a significant dent in the underlying problems: persistent unemployment, weak housing market, slow growth in GDP, insufficient consumer demand, weak corporate investment and pernicious home rule. We are still awaiting the rising tide which raises all boats. Our easily distracted governor is not addressing the real problems, and much of the legislature’s efforts are falling on deaf Executive Office ears where the mantra is to cut.