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Independent gubernatorial candidate Chris Daggett Tuesday proposed what he described as a fundamental restructuring of new Jersey's state’s tax system, changes that he said would deliver up to a 25 percent property tax cut for all homeowners to a maximum of $2,500. All senior citizen property owners would receive the maximum cut of $2,500 per year.
“Property taxes are the number one issue in New Jersey and the main reason why people are finding the state unaffordable and leaving for other states,'' Daggett said in Trenton. "New Jersey is the only state in the nation where residents pay more money in property taxes than in income, sales and corporate taxes combined. This program will end that inequity.’’
With the announcement of his plan, Daggett became the first of the three major candidates to detail how he would confront the cost of property taxes, considered the top issue in the election by voters.Daggett’s proposal would revamp New Jersey’s entire tax system and realign the state’s four major sources of state and local revenue along the lines of recommendations of academics and most influential state organizations. He said it would also provide more stability and balance to a tax system which has changed dramatically as the nation and state have largely shifted from a manufacturing economy to a service-based economy.
"New Jersey’s over reliance on property taxes is the reason people regard it as the biggest problem facing the state,'' Daggett said. "The only way to achieve an immediate cut in property taxes is to shift some of the burden to another tax.''
Under the plan, the $1.6 billion spent in this year’s budget for property tax relief programs — including homestead rebates, the senior citizen property tax freeze and the income tax write-off for property taxes — would be folded into a property tax credit that would be deducted directly from homeowners’ property tax bills, an action proposed by the Legislature’s Property Tax Study Commission three years ago.
Daggett’s tax reform plan would extend the existing 7 percent sales tax to a wide range of personal, professional and household services, including services provided to individuals by professionals such as lawyers, accountants and architects. The sales tax extension would not include business-to-business services. The expansion would add $3.9 billion in tax revenue.
The $3.9 billion in new sales tax revenue would be combined with the $1.6 billion from existing property relief programs to fund the $4 billion property tax cut, a $620 million reduction in the income tax surcharge, a $750 million drop in corporate income taxes and a permanent source of funding for open space to cut future debt.
“New Jersey’s tax system is broken. Democrats and Republicans keep trying to deal with recurring deficits with one-shot gimmicks and borrowing that puts the state further in debt,’’ Daggett said. “We need new thinking in Trenton to solve our state’s fiscal crisis. Only an Independent is capable of changing the system.’’
Daggett said the most important component of the package is the imposition of a cap on municipal, county and school district budgets based on the Consumer Price Index (CPI). If a budget exceeds the cap, homeowners in the town will not be eligible for the new property tax credit, a provision that will serve as a hammer to control government spending.
“We cannot hold down property taxes without addressing the employee salaries, health care and pension benefits that are the real cost drivers of state and local government spending,’’ Daggett said. “This provision gives local governments and school districts the weapon they need to finally say no because this program carries a big stick: If you exceed the cap, you forfeit the property tax cut for your citizens.’’
Daggett said i mposition of the cap could save New Jersey taxpayers approximately $100 billion in property taxes over the next decade compared to the average rise in property taxes over the past 10 years. The cap also will cut the state’s projected $30 billion pension deficit, which is based on actuarial calculations that assume the continuation of annual salary increases of 4.5 percent to 5.5 percent for public employees; pensions are based upon the three highest years of salary, so if employees retire at lower salary levels, pension costs are reduced.
A key element of the tax overhaul is designed to make New Jersey more competitive with other states by reducing corporate and income tax rates. The plan funds the reduction of the top income tax rate from the current 10.75 percent to 8.97 percent, which would drop New Jersey’s top rate from third-highest to seventh-highest in the nation. The 10.25 percent and 8 percent brackets would also return to the previous levels of 8.97 percent on income over $500,000 and 6.37 percent over $75,000.
New Jersey’s corporate income tax rate would also be reduced under Daggett’s plan. The top rate would drop from 9.36 percent — the statutory 9 percent rate plus a 4 percent surcharge — to 7 percent, which would drop New Jersey from sixth-highest in the nation to 25th, below both New York and Pennsylvania. The rates on small business would drop from 7.5 percent to 5.8 percent on businesses earning bet ween $50,000 and $100,000, and from 6 percent to 4.7 percent on those earning less than $50,000.
Daggett said the tax cuts would make New Jersey more affordable for people and more competitive for businesses, and will bring jobs back to the state. “Just as important, the cap will put a long-term brake on property tax growth and school, municipal, county and state government spending,” he said.
The $3.9 billion sales tax expansion would include a $205 million extension of the 7 percent sales tax to vacation home and condominium rentals to establish a stable source of funding for open space preservation and related uses. Daggett said only 19 percent of the tax would be paid by New Jersey residents, and it makes taxation of private rentals comparable to hotels and motels, as most states with shore tourism economies, including North Carolina and Florida, already do.
Daggett said the plan keeps his promise to identify a stable source of funding for open space preservation by dedication $100 million to protect open spaces and preserve farmland. In addition, this stable source of funding would provide $20 million to triple funding for tourism promotion, and up to $10 million would be set aside to replace beach badge revenue for shore towns or counties that are willing to make their beaches free.
Finally, as with the existing hotel and motel tax, the plan would allow municipalities with vacation homes and condominiums to add a 3 percent local option tax on seasonal rentals by vote of their governing bodies. The option would provide up to $60 million to fund the burden of tourism or reduce property taxes in towns with seasonal rentals; 94 percent of seasonal rentals are Monmouth, Ocean, Atlantic and Cape May counties.
“This tax reform plan makes New Jersey’s tax system more equitable, and it also makes next year’s budget problem more manageable,'' Daggett said. " At the same time, the plan begins to deals with the $130 billion in long-term unfunded liabilities by finally beginning to rein in the pay increases given to public employees that drive up both local property taxes and state pension obligations.’’
— TOM HESTER SR., NEWJERSEYNEWSROOM.COM
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