Spendthrifts in Trenton

SPENDTHRIFT - Someone who is not to be trusted with large sums of money. See also New Jersey politicians.

New Jersey politicians, including Governor Jon Corzine, are looking to find revenue in all kinds of places. They're looking at DVD rentals, video on demand, and the folks that are determined to alter the tax structure are pushing for what is essentially multi percentage increases in the taxes people pay.

"The sales tax in New Jersey has been ignored for too long," said Jon Shure, president of New Jersey Policy Perspective, a liberal think tank that favors an overhaul of the sales tax. "This has increasingly become a service and technology economy in our state, but the sales tax is still a tax from when this was a manufacturing and goods states."

Gov. Jon Corzine fanned speculation about sales tax changes last week when he said he was closely examining an alternative used by just a handful of states.

New Mexico, Hawaii and North Dakota are among the few states that tax most services -- but they do it indirectly, by taxing the gross receipts of businesses rather than individual sales to consumers. Collecting the tax at the wholesale level is far simpler, and while consumers end up paying through higher prices, there may be less public outcry against such a "hidden" tax.

By contrast, when Florida extended its sales tax to many services in 1987, the backlash was so furious that legislators, during a special session, repealed the extensions six months later and instead added a penny to the sales tax rate.

So, instead of dealing with cutting state spending, the focus is on increasing revenues when the state has shown itself to be an extremely poor steward of tax revenues - racking up multibillion dollar deficits, specific funds (transportation, pension, school construction) that are tapped out out of raiding the funds to pay for other items or because of mismanagement.

Corzine's gang is looking at taxing the services of every professional group one can think of:

Whether direct or indirect, a tax on services by professionals ranging from lawyers, accountants and architects to barbers and limo drivers could go a long way to closing the state's looming $4 billion budget gap. One Treasury Department estimate indicated it could raise $2.2 billion annually.

It wont close the budget for long if those same businesses decide to go elsewhere, cut back new hires, or otherwise pass on costs to their clients. These businesses would be less competitive than other jurisdictions where these services are not taxed, and the tax burden would shut businesses or force relocations as well. So, instead of closing the gap, these new taxes would actually expand the gap in the long term.

Shure and others argue that expanding the tax to more services would spread the cost of state government more evenly. "The sales tax is not the best tax. But if we're going to have one, and I think we need to, we need to modernize it," he said.

"Most states could improve their sales taxes and their tax systems in general with some expansion of the tax base to include services," said a 2003 study by Michael Mazerov, an analyst with the Center on Budget and Policy Priorities in Washington, D.C. "Adding services could make tax systems fairer, more stable, more economically neutral and easier to administer."

Sales tax is generally considered a regressive tax, in the same way that gasoline tax is considered regressive and it affects those at the lower end of the economic scale more than those at the higher end. However, if New Jersey were to consider taxation of services, they would be wise to go in a revenue neutral manner and lower the overall state tax rate at the same time as expanding the tax to services. Lower the rate to say 3.5% but expanding the tax to services would not only spur retail sales, but the tax burden would be more evenly split. In its current incarnation, the plan would be onerous and unduly harsh on businesses and potential customers.

Enlighten NJ notes that the Governor still isn't making the hard choices. The Governor is still pinning his hopes on gimmicks.

UPDATE:
The Bergen Record is reporting that the Open Spaces Trust Fund is also nearly tapped out.

New Jersey's landmark effort to save open space could run out of money next year, ahead of schedule and well short of the 1 million acres it was supposed to preserve.

The Garden State Preservation Trust has conserved less than 250,000 acres of farms, open space and historic sites thus far -- still a success, conservationists say, but well short of what was advertised when voters approved the $3 billion fund in 1998.

Top Republicans and Democrats, including Governor Corzine, say they'll go back to voters with another multibillion-dollar borrowing request as soon as November to replenish the fund. But some worry that preservation may be a tougher sell this time around.

Another borrowing request, which means more debt that has to be repaid, adding to the already onerous tax burden. I'm a big fan of supporting open spaces initiatives - preserving the state's wild areas like High Point State Park, Skylands, and other areas of scenic beauty, but the state has done an awful job managing the program, which shouldn't surprise anyone.