| Yesterday, Chris Daggett released a plan to cut NJ property taxes. While it is noble to offer up a plan that attempts to deal with a huge problem facing New Jerseyans (in fact, there is some very interesting tax information in the latest Quinnipiac poll), there are some pitfalls with the plan.
For starters, the property tax problem stems from an entire systemic issue in the state - from the number of towns, municipalities, the waste in certain types of services (for example, in my hometown, I don't need the sanitation workers to come to the side/back of my house to collect my garbage - I can drag the cans to the curb. But that is a service that takes time and costs money) and the overall duplication of things that property taxes pay for without consolidating localities. In fact, an entire series of posts can be done just on the property tax issue.
That being said, Daggett's plan, in his own words, would: deliver up to a 25 percent property tax cut to all New Jersey homeowners to a maximum of $2,500. All senior citizen property owners will receive the maximum cut of $2,500 per year.
Sounds great. But.....the devil is in the details. The property tax reduction would be offset by other taxes (mainly by increasing the sales tax base), and really wouldn't deal with the other huge issue - the projected $8 billion budget hole for next year, let alone future years. Without getting too "tax geeky", here are a couple of issues that I see with this plan - as it relates to the lower and middle income taxpayers. Personally, my fear is that, while this is relatively revenue neutral, I'd be interested in the overall breakdowns as to the benefit to families earning under $50,000, families earning between $50,000 - $100,000 and families earning over $100,000.
Here's why: Under the plan, the $1.6 billion spent in this year's budget for property tax relief programs-including homestead rebates, the senior citizen property tax freeze and the income tax write-off for property taxes-would be folded into a property tax credit that would be deducted directly from homeowners' property tax bills, as proposed by the Legislature's Property Tax Study Commission three years ago.
Daggett's tax reform plan would extend the existing 7 percent sales tax to a wide range of personal, professional and household services, including services provided to individuals by professionals such as lawyers, accountants and architects. The sales tax extension would not include business-to-business services. The expansion would add $3.9 billion in tax revenue.
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A key element of the tax overhaul is designed to make New Jersey more competitive with other states by reducing corporate and income tax rates. The plan funds the reduction of the top income tax rate from the current 10.75 percent to 8.97 percent, which drops New Jersey's top rate from third-highest to seventh-highest in the nation. The 10.25 percent and 8 percent brackets also return to the previous levels of 8.97 percent on income over $500,000 and 6.37 percent over $75,000.
New Jersey's corporate income tax rate will also be reduced under Daggett's plan. The top rate would drop from 9.36 percent (the statutory 9 percent rate plus a 4 percent surcharge) to 7 percent,
The issues with this are, in a nutshell:
- The sales tax is inherently regressive - that is, it impacts lower and middle income families more than it does for higher income families. This is because most things (even though NJ exempts a lot of goods that would be paid for by lower and middle income families) subject to sales tax are paid at a higher percentage of income by lower and middle income families. If you are interested, here is a good write up on the federal "fair tax" that discusses how a flat sales tax is skewed.
- The reduction in the top income tax rate is obviously designed to help those in the upper income levels, and there will not be one penny of savings to lower and middle income families.
- The reduction in the corporate tax rate will also not be beneficial to lower and middle income families, and no, this won't mean more jobs for people in NJ. The whole "trickle down theory" is a load of crap and we haven't seen any real job growth opportunities from reduced corporate income taxes. Witness how many Fortune 1000 companies in the US don't pay any corporate income tax on their income and they still give huge perks to top execs at the expense of ever widening wage gaps.
- While somewhat controversial, the plan will eliminate the $1.6 billion rebate program - which is for the lower to middle income families currently.
Now, some of the items that will be subject to sales tax will not be borne by NJ residents, and some of these taxes will be borne by higher income earners. However, the property tax break and reduction still doesn't (as far as I know) address the REASON for the high property taxes and the services that will be cut from such a reduction.
Unless the overall system is changed, this seems to be no more than an elaborate shell game of reducing taxes on a much larger scale for those who can afford it most, while being at best (relatively) neutral for those who need the break the most.
That being said, at least it is a plan, and that is more than we can say for Christie, who just yesterday promised Neil Cavuto that he would not raise any taxes ever. And give everyone free chocolate, bunnies and have New Jersey in a permanent sunny day with rainbows. |
