newjerseynewsroom.com

BY MICHAEL BUSLER

COMMENTARY

Governor Christie has announced his plans for the fiscal 2011 budget. He has kept his promise not to raise taxes on the already over-taxed New Jerseyans. However, since the economy is recovering from a severe recession, with unemployment around 10 percent, tax revenue will be relatively low. In order to balance the budget, Christie has called for very large cuts in government spending. Are his cuts the best way to solve the problem?

There is certainly widespread debate about where the cuts should be taken. Christie's position essentially is to skip a $3 billion payment to government worker's pension fund, layoff about 1,300 government workers, eliminate homestead rebates, cut education aid by about $1 billion and trim some waste. He says this is the fairest way to balance the budget and to keep his promise not to raise any taxes. But is there another solution?

"We have an idea," the tax revolters would say. "We are generally pleased that there will be no new taxes. Everyone knows New Jersey residents are severely over-taxed. But there may be a better way to handle the problem. According to the Bureau of Labor Statistics the average salaries and benefits are more than 50 percent higher for government workers than they are for those in the private sector. And the retirement benefits paid in the public sector far exceed those paid in the private sector. This needs to be fixed."

While that seems like a good idea, Governor Christie is contractually bound to the current pension system which allows a state worker to retire at 62. In addition, based on a deal made last year by then Governor Corzine, state workers will receive a 3.5 percent wage increase on July 1, 2010 and another 3.5 percent increase on January 1, 2011. Christie tried to change this, but realized he was legally bound to comply.

"That's absolutely absurd." The tax revolter continues, " The workers are already way overpaid and they want 7 percent more. Forget the contract. This is a financial emergency and the contract must be renegotiated. And while we are doing that, let's renegotiate the 62-year-old retirement age. Here's our idea which we call the ‘ten seventy' plan. Have all 76,200 government employees take a 10 percent cut in wages and raise the retirement age to seventy. That will just about solve the entire problem, while preserving the 1,300 jobs that are due to be eliminated and it restores state aid to education. We know this won't be easy, but it certainly makes sense."

The tax revolter then adds, "The federal government is raising the retirement age for Social Security from 65 to 68 and eventually that will be 70 also. Look, when social security was enacted some 75 years ago, the retirement age was 65 and people were only living to 67. Now people are living to 75, or 85 or 95 or more. It is impossible for the system to support retirees for 30 years or more. So raise the retirement age to 70, even if that has to be done gradually."

"And watch out for the slanted ads you are seeing on TV. The one that bothers us the most is from the public school teachers. We are generally pleased with the quality of the service the teachers provide. Our kids are well educated with a very high percentage going on for higher education after graduating from high school. The problem is that the teachers charge way too much for their service. They claim that while Christie is cutting $1 billion from the education budget, he is giving a $1 billion tax break to the wealthy. That's a bunch of poppycock. Corzine raised the top rate for the state income tax from about 9 percent to almost 11 percent for one year to close this years budget gap. This was the temporary 'millionaires' tax. It was approved as a one time tax increase for just the fiscal year 2010 and was never intended to continue beyond 2010. That tax rate increase expires this year and Christie will allow that to happen. The teachers claim that this is a tax cut for the rich. Poppycock. Those earning more than $400,000 per year are already over-taxed. It hardly seems fair to over-tax them further just to pay the inflated salaries.

The ten seventy plan is very interesting. Politically it may be impossible. But if we examine the numbers fairly the plan may make a lot of sense. Are you listening legislators?

Michael Busler is an Associate Professor of Finance and a Fellow at The William J. Hughes Center for Public Policy at The Richard Stockton College.

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