| Publications | Commentary | Newsletters | In the News | Press Releases |
 |
 |
Every year around this time reports are issued that lead to headlines like: "N.J. gets low return for taxes," and "N.J. gives more than it gets from Washington." You read them and you wonder why the feds have it in for Jersey. And why does our congressional delegation forget about us when they're safely inside the Beltway?
Well, take this off your list of things to worry about. If New Jersey pays more in federal taxes than we get back in federal aid, what it really means is that at least one part of our tax system is working just exactly as it should.
The reports come from Harvard University's John F. Kennedy School of Government and the Northeast Midwest Institute. Both say pretty much the same thing: New Jersey is number two in the nation, behind only Connecticut, when it comes to getting back from Washington less than what we send down. Harvard says the numbers average out to where each one of us 8.1 million New Jerseyans pays $2,342 more than we get back. And the Northeast Midwest Institute chimes in with the figure that over the course of 1999, we "lost" $20.7 million.
The response should be a collective cry of "So what?"
Here's why.
First, the measurements are questionable. For example, when a corporation headquartered in New Jersey (and there are lots of them) pays its federal income tax, the studies charge it all against this state. But it should be apportioned among all states where the corporation has income-producing facilities. On the benefits side, it's pretty easy to allocate a federal contract to whatever state the contractor comes from, but by the time you get to second- and third-source subcontractors (and there are lots of them, too) the trail gets very hard to follow. And what about money you get to deduct from federal income taxes? That doesn't show up as federal spending but it's real nonetheless. So one benefit - if we can call it that - if New Jersey's sinful over-reliance on local property taxes is that it gives you more to deduct from your federal income taxes. The more you make, the more that deduction is worth-and New Jersey makes a lot.
Those are some reasons why such studies are inaccurate, but more important is why they are irrelevant.
What does the federal government tax? Unlike states, Washington charges no sales tax. And unlike municipalities, it levies no property tax on the value of your house. No, federal taxes are geared much more to your ability to pay taxes because what Washington taxes is income. And in income New Jersey just happens to be number two in the United States, behind (you guessed it!) Connecticut.
So of course we pay a lot. New Jersey's median household income from 1996-98, according to the Northeast Midwest Institute report, was $49,303- almost $12,000 above the national average of $37,779.
If this balance-of-payments deficit still rankles, there is something you can do, short of overhauling the federal budget process. You can move to Mississippi. Or Alabama. Or South Dakota, North Dakota Montana or Alaska. Those are among the states with the biggest "surplus" in their relationship with the federal government.
There are, of course, tradeoffs beyond the hard time finding decent pizza or corned beef sandwiches. You will live in a place that is just plain poorer than New Jersey, which is why those states pay less in federal income tax. And you live in a states with, most likely, an above-average number of senior citizens collecting Social Security and of people who make their living in industries relying on federal military spending. That's not to say such people are a negative; it just means that the extra money these states get back from Washington, won't necessarily go into your pocket or make your life noticeably better.
No one likes to talk about it much these days (dare we be accused of "class warfare?") but one purpose of an income tax is to redistribute income. This is because no matter how much we love free markets and revere free enterprise, they can't make sure income is parceled out in a way we might conclude is equitable or desirable.
So, New Jersey is being treated appropriately. Our delegation in Congress should work hard to get us all they can at the same time we understand that if New Jersey gets more than we send, what that means will be bad news, not good.
If anything, we should be taking a lesson from Washington. New Jersey municipalities take more in local property taxes than Trenton takes from state income and state sales taxes combined. That means we do a much poorer job of sending money to where it's needed most and evening out gaps in quality of life. Changing that would be worth a headline.
A version of this commentary ran in several New Jersey newspapers.
| © 2008 New Jersey Policy Perspective |  |