Gov. Christie Issues Budget Declarations

New Jersey governor Chris Christie issued his annual budget message, and noted the seriousness of the pension and benefits mess that Christie has inherited and the need to overhaul the budget process.

The upcoming budget is going to be the same size as last year's budget in actual dollars, which means that the challenge will be to deal with higher costs (such as from pensions and health care) without squeezing out vital and necessary programs).

One change sure to raise eyebrows is to shift Medicaid recipients into a managed care arrangement that would save the state an estimated $300 million per year.

New Jersey's unfunded pension obligations are a crushing burden on the state in years to come, and while Christie has called for a payment should his agenda be passed, that's just the down payment on a real need to restructure the pension system in New Jersey for the public sector to bring it in line with the private sector.

While some people will claim that this is an assault on the middle class and unions, who exactly is getting hammered by out of control taxes? That would be the same middle class - getting squeezed by built-in COLAs and political deals that are simply no longer affordable and are based on assumptions that are no longer relevant.

Raising retirement ages would make sense since people are living longer and pensions would be drawn for years (or decades) longer than they were a generation ago. New workers should be entitled to 401(k) and comparable private sector benefits and all workers should be expected to put in comparable shares of health care benefits that are in line with the private sector. Rationalizing the state's benefits will help reduce ongoing structural deficits with the budget and prevent the need for massive tax hikes going forward to balance the state's budget and obligations.

On the tax front, Christie proposed a $2.5 billion tax relief and incentive program for the next 5-year period

We will double our State Research and Development Tax credit to encourage High Tech and Bio-Tech entrepreneurs to create their next great discovery, and the jobs that go with it, right here in New Jersey.

We will allow loss-netting and loss carry-forward relief, to be phased in over five years. Our current policy of restricting loss carry-forwards hurts small business, hurts entrepreneurship, and hurts New Jersey.

We will stop penalizing our corporations for adding jobs and investing in New Jersey by joining 28 other states in using a single sales factor;

We will cut the minimum S-corporation business tax by 25%. Again, this will make us more competitive in the region and encourage small businesses and entrepreneurs; and

We will exempt from the sales and use tax installation and support of electronically delivered business software. Taxing such software is a burden on high tech innovation;

The death tax in New Jersey is too high and too burdensome on small businesses and the middle class. We must begin to reform it. Only three states have both an inheritance tax and a death tax, and New Jersey is one of them. My budget would provide a first step in relief by raising the death tax exemption for families and small businesses. Again, this will put us more in line with other States in the region.

The corporate tax changes would bring New Jersey in line with other states and improve the state's competitive edge compared with other states. It would also simplify some tax accounting procedures.

UPDATE:
The NJ Division of Taxes publishes annual statistics on income (last reported year was tax year 2008). It's rather eye-opening when it comes to personal income taxes in New Jersey and just who exactly is shouldering the burden of taxes.

If you think that the rich aren't paying their fair share, the report might disabuse you of that notion as 1.2% of state taxpayers are paying 21.5% of the state's revenues from the personal income tax. The flip side is that you might think that isn't sufficiently high enough, even though that when you rely on so few people for such a large percentage of your income a shock to that particular income group will cause revenues to bounce around significantly (just look at New York and its revenue roller coaster from Wall Street sources).

Those taxpayers who fall squarely within the middle class in New Jersey - say those making $35,000 to $150,000 (table 1.4 and forward), are shouldering the bulk of the tax burden in the state (which is supposed to be directed to property tax relief as the statute was originally implemented in the 1970s). Since dealing with legacy costs like health care and pensions would reduce the need for still higher taxes, this would result in a long-term tax relief for the middle class.