Our Fate - Tied to our "Friends" on Wall Street

by: deciminyan

Tue May 17, 2011 at 12:00:10 PM EDT

Is our fate determined by the vagaries of Wall Street? That's the message delivered by David Rosen, Legislative Budget and Finance Officer in his testimony this morning before the Assembly Budget Committee.

While revenue from corporate business taxes is down, this is more than offset by an increase in gross income tax revenues. And the majority of that increase is from state taxpayers with income over $1 million.

Rosen presented a chart showing a strong correlation between the Standards and Poors 500 index and the gross income garnered by the state from income tax on millionaires.

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deciminyan :: Our Fate - Tied to our "Friends" on Wall Street

Rosen pointed out that the revenue from corporate taxes is the most difficult to predict, given the complexity of corporate businesses and their ability to exploit loopholes. He mentioned that corporate contributions are often viewed as a "voluntary" tax.

He said that while the large swings in the number of people earning over one million dollars has a big impact on state revenues, these swings are not due to their migration out of state, but rather are primarily a function of the volatility of the stock market and consequently peoples' incomes.

Whle the state's revenue picture is better than that which was predicted in Rosen's testimony two months ago, both sides of the Assembly chamber contended that this is not a time to go on a spending spree, given the state of the economy and New Jersey's structural deficit. The only exception was Assemblyman Gary Chiusano (R-Sussex/Morris) who floated the idea of a 40% reduction in the corporate business tax, supposedly to stimulate the economy.

Today, New Jersey's legislatively-mandated "rainy day" fund has a zero balance. By law, half of unanticipated revenue (other than from income tax) must go to this fund. So the increase in income tax revenue that was reported this morning, will not replenish the "rainy day" fund.

Next up: Testimony from State Treasurer Andrew Simadon-Eristoff this afternoon.