TRENTON-The state tax cuts of the 1990s are a gift that keeps on taking: reductions in the state income and sales taxes over the past decade have cost about $24 billion in lost revenue-money that could have been used to help balance the budget and avoid spending cuts that threaten the state's most vulnerable residents.

According to the NJPP analysis, revenue loss from the income tax cuts that began in 1994 and took full effect in 1996 has now reached $14 billion. And the money lost from cutting the sales tax, which took effect in 1992, is $10.2 billion.

The findings were released in Was it Worth It? Looking Back on a Decade of Income Tax Cuts, by NJPP President Jon Shure and Research Director Mary E. Forsberg.

"When it comes to things the State of New Jersey can't afford, the tax cuts of the 1990s should be at the top of the list," Shure. "They were bought with money that's no longer there. Their cost far outweighs their benefits, and we're still paying the price with money the state doesn't have. This needs to be part of the budget discussion this year."

New Jersey was one of 40-plus states that cut taxes in the 1990s, a time when the economic boom was bringing in revenue beyond expectations. But those times, and the revenue, are gone. The tax cuts have become an extravagance.

For over 90 percent of New Jersey households, the income tax cut on a yearly basis is smaller than the amount that local property taxes have risen during the decade. This is true because the lower a household's income is, the more likely it is that their property tax increase is greater than their income tax decrease. Average local property taxes have gone up $1,886 over 10 years. But only families whose yearly income approaches $200,000 have a state income tax cut larger than that amount.

By contrast, a family making $22,000 a year pays $135 less in state income tax than in 1993. At $60,000 the saving is $450; at $100,000 it is $600.

"Not only are the tax cuts an extravagance the state can't afford," Shure said, "but they are making New Jersey's tax structure even more unfair for low- and middle-income people."

NJPP's analysis cited research by the Washington-based Center on Budget and Policy Priorities which found that the states with the biggest tax cuts in the 1990s-and New Jersey is one of them-today face the most serious budget problems. According to a CBPP report, "At the time they were enacted, the large tax cuts of 1994-2001 may have appeared affordable in many states because tax revenues were coming in at levels above expectations and many states were running record surpluses."

But the boom wouldn't last. It came to an end in 2001. As the Center on Budget and Policy Priorities notes, "to a large extent the trends that underlay the tax cuts of the 1990s have turned out to be unsustainable...In other words, the tax cuts of the 1990s were financed largely by temporary economic conditions that have now ceased. But the tax cuts themselves were designed to be permanent."

The bottom line is that New Jersey, like so many states, bought something it couldn't pay for over the long haul. Now, in the face of short-term budget shortfalls and long-term structural deficits, part of the solution should be to confront the question of whether the tax cuts of the 1990s were worth it. Evidence strongly suggests they were not. Here's why:

• In most cases the drop in income tax was more than offset by an increase in local property taxes. It was a net loss in citizen's wallets, felt most by low- and middle-income households. The people who can least afford higher property taxes are the ones who are getting the smallest state income tax cut.
• Cutting income taxes and raising property taxes is a shift away from taxation based on ability to pay. New Jersey already is a state where the highest income people pay a lower percentage of their income in major state and local taxes than do people with lower incomes.
• The tax-cutting trend has worsened the state's overall financial situation, making the current budget hole deeper than it likely would have been and making state government less responsive to peoples' needs.

A decade's worth of revenue will not be recovered. But it is not too late to correct the problem for the future. An honest budget discussion means confronting the question of whether the tax cuts of the 1990s were worth it. Evidence strongly suggests they were not.

TAX REFORM

WORK & WAGES

BUDGET & FISCAL POLICY

TRANSIT ISSUES

ECONOMIC DEVELOPMENT

VOTING & GOVT REFORM

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