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A state budget exceeding $23 billion might seem a fat target for slashing when revenues fall. But closing a $1 billion shortfall isn't so easy. First, forget cutting the parts that can't be cut - like interest on the state's growing debt, money for entitlements like federally mandated programs and aid set by legislative formulas. Then consider that many social programs already are under-funded.
And, since every dollar the state spends goes directly into the economy, and assistance given to lower income people tends to be used for necessities, state budget cuts in tough economic times are a missed stimulus opportunity. Indeed, tax increases on the wealthiest are much less damaging to the economy because they are most likely to tap savings and investments that weren't going to be spent any time soon.
But if cut we must, let's start with a fraud being perpetrated on the public: the NJ SAVER property tax rebate. When it was created a few years ago not a cent was set aside to pay for it. So the government decided to phase it in at intervals of 20 percent per year. Last year, in good times, they gave us two year's worth. So now let's notch it back to the previous year's level. That's a saving of $200 million. And unless the state comes up with a way to pay the billion-dollar price tag for a fully phased-in NJ SAVER next year let's consider scrapping the whole program.
Let's also do away with the option of people deducting their property tax from their state income tax. That saves $250 million, and ends a practice of giving the biggest breaks to the richest people. Add to that about $45 million that Governor-elect McGreevey believes we can save by eliminating NJ SAVER completely for those making above $200,000 a year.
We've gotten about halfway there dealing with spending. Now we stop cutting and start righting some wrongs in the way New Jersey raises money.
Perversely, in this state the lower your income the higher percentage of what you make goes to taxes. That's mainly because the state sales and local property taxes are so regressive, and the state income tax isn't progressive enough to balance it out. So we should impose a Financial Assets Tax on households that have at least $2 million in such assets - stocks, bonds and the like. Taxing at a rate of a quarter of a percent should bring in more than $500 million a year. There's some justice here: this tax would hit just the one percent of households making the most income, the very same group that benefited most from this year's federal tax cuts.
Let's make the Financial Assets Tax an emergency levy, expiring in three years. We can revisit it later.
It's time to stop putting off the inevitable increase in New Jersey's gasoline tax. Only three states have lower gas taxes and raising ours by just 4 cents per gallon still makes it one of the nation's lowest - while taking in an additional $200 million per year. That is the same amount the state decided last year to take from the sales tax to fund transportation - so that money could go back into general use.
There is more we can do. When money goes to people near the bottom of the income scale they spend it on daily needs like food and rent. So let's extend unemployment benefits by 13 weeks to boost the economy by helping those most in need. And let's further help working families by becoming the first state with paid family leave. At most this would require very small increases in the unemployment and disability taxes paid by workers and employees.
And here's one thing not to do: adopt a proposal to base corporate income taxes only on how much a firm sells in New Jersey. This huge break for a few companies would knock a $250 million annual hole in the state treasury.
New Jersey got into this mess partly by squandering prosperity, borrowed and using other devices over a decade to avoid tax increases that would have helped us face the economic downturn that had to come someday. What we can't afford to squander now is the chance to make long overdue changes in how New Jersey raises and spends money. This isn't a job for guys in green eye shades poring over ledgers to learn what bureaucrats eat for lunch or how many pencils are bought. What's needed is for the people of New Jersey and their leaders to discuss what we want and need government to do, and how to make sure we honestly confront - and equitably share - the burden of paying for it.
A version of this commentary appeared in the Star-Ledger, December 11, 2001.
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