New Jersey Needs $2.7 Billion to Balance Its Budget; Gov. Christie Vows He Won’t Increase Taxes to Do It
It’s crunch time in New Jersey. Republican Governor Chris Christie is facing a $2.7 billion budget shortfall over the next two years, and according to the state constitution, the Democrat-controlled legislature must have a spending bill passed and signed by the governor by June 30. The clock is ticking, but the governor and legislature are nowhere near an agreement on the terms of a bill that will balance the budget and ultimately pass the governor’s “no tax increase” muster.
Governor Christie plans to fiscally bridge the gap by calling for a two-year reduction in the state’s contribution to what he calls a “bloated and broken” public worker pension system. He has already secured $900 million through an executive order for this year and is looking to the legislature to approve the $1.5 billion balance for next. As you might expect, his plan is being met with a potential barrage of law suits from the New Jersey Education Association and the Communications Workers of America. Democratic legislators, led by State Senate President Stephen Sweeney, are vehemently opposed and have now approved a plan of their own.
The approved Democratic plan will essentially resurrect former Democratic Governor Jon Corzine’s expired 2004 “Millionaires’ Tax.” With their plan, the Democrats promise to raise $1.57 billion in revenue, largely through tax increases on businesses and wealthy residents. This will increase the tax rate on incomes ranging from $500,000 to $1 million from its current 8.7 percent to 10.25 percent. For those making over $1 million, a 10.75 percent rate would be levied. In addition, the Democrats’ plan would freeze some tax credits and impose a 15 percent surcharge on corporate taxes. This is a plan that Christie has vetoed three times already. It is a tax increase that some have called the “Goodbye New Jersey Tax.”
Governor Christie has been very clear on one point: if the bill presented to him by the legislature includes any tax increases at all, he will veto it, and with good cause. Studies show that the state is already shedding considerable wealth, as over-taxed residents pack up and leave for states with more favorable tax environments. According to New Jersey Wealth Management Firm RegentAtlantic Capital, in the four years prior to governor Corzine’s “Millionaires’ Tax,” the aggregate net worth in the state increased by $ 98 billion. After the tax was implemented, the net outflow reversed “70 percent of the wealth gained in the prior four years.” RegentAtlantic’s assertion is that high taxes are decimating the Garden State’s wealthy population along with their associated tax contributions, and the firm further reports that in 2010 alone (the last year of the old Corzine tax), 88,000 individuals left New Jersey, taking with them a total taxable income of $5.5 billion.
In a longer and more in-depth study based on IRS data, the book How Money Walks illustrates that between the years 1992 and 2011, the state of New Jersey lost over $22 billion in working wealth to lower tax states, such as Pennsylvania and Florida. In addition to having notably high income taxes, New Jersey also levies high sales, estate, and property taxes. The state already taxes the income of millionaires at one of the highest rates in the country – higher than 44 other states.
In point of fact, Democrats do not have the two-thirds majority in the Senate and Assembly needed to override the governor’s veto. They will have to look seventeen months down the road to place their tax plan before the voters as a constitutional amendment, attempting to do an end-run around the governor. The plan worked last year in getting approval to hike the minimum wage over a Christie objection, but it may not this time. Governor Christie garners a lot of support from his constituency, as shown by his re-election results last year. In addition to Republican voters, Christie was also supported by a third of Democrats, and two-thirds of Independents. He is the first Republican in 25 years to receive more than 50 percent of the New Jersey vote, and is a possible contender for the White House in 2016.
Christie is obviously not in the mood for doing Florida Governor Rick Scott any favors by sending more New Jersey taxpayers his way. He clearly stated, “Income taxes being raised in any way, shape or form will not happen while I am governor – under any circumstances…. The ‘Millionaires’ Tax’ is not an option.”
That said, this is certainly going to be one to watch for New Jersey taxpayers.