Sunday, June 28, 2009

The New Jersey Budget Song and Dance

New Jersey is one step closer to the fiscal precipice. The State Legislature passed a budget before the weekend and it's inevitable that Gov. Jon Corzine (D) will sign it into law.

Much is being made of the fact that this budget is billions less than last year's budget, but that's only through dubious accounting. Everyone is seemingly ignoring the fact that the state is getting billions in federal funds to make up for the shortfall, but it's a one shot approach that leaves the state billions in the hole going forward.

The state had to raise still more taxes and fees, and yet that will not be enough to balance the budget, which keeps slipping further and further out of whack, even after the state received a windfall from the recently completed amnesty program.

Pension obligations keep mounting, state spending keeps increasing for education, even though the state can't afford it, and then there are those taxes.

James Ahern attempts to congratulate Corzine on the budget, but even he can't ignore the disastrous budget just completed:
Corzine took a no-layoff pledge, effective through December 2010. The decision of the Civil Service Commission allowing him to impose furloughs unlimited in breadth or length is to be rescinded. Also, workers will be entitled to seven extra "bankable" days off. They can take those days any time after June 30, 2010, or they can wait and cash the holidays at retirement, when their pay will be higher.

The budget includes one-shot gimmicks and deferrals, the very sort of borrow-and-spend financing that Corzine had previously denounced. He acknowledges that, but says that with revenues dropping precipitously in the recession, these measures were unavoidable.

He is raising taxes, especially the state income tax. The top rate, 8.97 percent since 2004, will soar to 10.75 percent on household income higher than $1 million, the second highest rate in the nation, after Hawaii's. That means that in just six years the top rate will have risen by nearly 70 percent.

He is also raising rates on somewhat lower income categories, between $400,000 and $1 million. The increases are expected to yield more than a billion dollars for the state in the fiscal year that begins Wednesday.

In all, 61,300 taxpayers would be affected. It is an affluent group, able to absorb this hit. However, as discussed here earlier, people with such means have alternatives.

For instance, Florida has no income tax. A family could establish legal residence for six months and a day in Palm Beach or Naples, continuing to maintain a home in New Jersey for the remainder of the year. These days, business can often be done via the Internet as easily as in person, and the switch would save significant money.
Every millionaire that leaves the state or every business that chooses to start elsewhere means that remaining taxpayers will stuggle to make up for the state spending that still exceeds the levels seen when Corzine proposed his first budget. This remains a fiscally irresponsible budget that leaves the mess for what will in all likelihood be someone else - Corzine faces an uphill battle against GOPer Chris Christie precisely because the state's finances are a wreck.

Let's not forget that Corzine became governor with the promise of providing property tax relief. Property taxes keep increasing, and the property tax relief program has remaining on the chopping block because the sales tax hike that was enacted to fund it fell billions short. The program was severely curtailed, but the sales tax remains.

Ahern looks longingly at the gas tax and sees room for increases, even though that's one of the few benefits of being in the state since it means more money left to actually buy other items and it reduces energy costs.

Cigarette taxes continue to be increased practically every year, and the revenues aren't exactly meeting projections either. This year, the tax on wine and liquor was increased, and other fees and charges are increased as well.

One billion dollars in tax hikes wasn't enough.

Let that sink in for a moment.

The Democrats in Trenton are running out of room at the fringes to tax and spend, which means that unless the state's financial outlook improves, the state is going to face massive deficits next year and even less money to balance the books.

That means that the state will be forced to raise the major taxes once again - the corporate income tax, the personal income tax (which was first enacted in the 1970s to provide property tax relief), the sales tax, and the property taxes.

All of which will make one of the most heavily taxed states even less livable.

One of the biggest tax hikes comes on those who are already reeling from the damage done to Wall Street in the past year. People making $150,000 to $250,000 will see significant tax hike:
The bulk of the new revenue in the budget, which is $4 billion less than the current budget, will come from a one-year increase in the income tax on people making more than $400,000 a year, or roughly 61,000 residents. Taxes will go up by 12.5 cents per pack on cigarettes, and 25 percent on hard liquor and wine. People who win $10,000 or more in the lottery will see their good fortune taxed as well.

Those who make more than $250,000 a year will no longer be able to deduct their property taxes, at least for one year. Those making between $150,000 and $250,000, meanwhile, can deduct only a maximum of $5,000.
In a state where property taxes usually range $10,000 or more, we're talking about a $5,000 hit in taxes. That's $5,000 that could to home repairs, new car purchases, or other spending. That means fewer people working, spending, and the domino effect continues.

This situation is only going to get worse until such time that the politicians in Trenton go ahead rein in spending.

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