newjerseynewsroom.com

BY MICHAEL BUSLER

COMMENTARY

Governor Christie wanted a 10% income tax cut for all New Jersey income taxpayers while others, like Assemblyman Louis Greenwald, prefer a property tax cut of up to $2,000 per middle-class (only) property owners. The governor recently agreed to drop his plan in favor of the property tax cut. Was that a good idea?

Assemblyman Greenwald, among others, argued that their plan will provide tax relief to the middle class who is struggling today. He notes that individuals with incomes in excess of $1 million do not need tax relief and should therefore be excluded from any tax cuts. He further notes, that although Governor Christie says he wants to keep property taxes down, property taxes have increased almost 20%, on average, since 2009. Greenwald says that Christie’s plan will provide a tax cut of about $20 for many New Jerseyians; that is hardly a tax cut at all.

Governor Christie originally argued that all New Jerseyians are over-taxed. He says that if you add the federal income tax, the NJ state income tax, social security and medicare taxes, a 7% sales tax on almost everything that we buy and the abnormally high property taxes, many residents pay over half of their income in taxes. This causes a range of problems like having high achievers wanting to leave the state, a lack of investment capital for expansion of the private sector and a disincentive for achievers to contribute more. Since he can’t control the federal taxes or local property taxes, he wanted to reduce the state income tax for all income earners by 10%.

Which idea was better?

To answer the question we must first decide the real purpose of the tax cut. Is it to provide relief (reduce expenses for tax payers) or to stimulate the state’s economy? I think most people will agree that while both purposes are important, the primary goal should be to stimulate the economy. If that is the case then the Governor’s original plan makes more sense. Why?

There are essentially two things needed to stimulate the economy: an increase in demand for goods and services so that people will buy more and secondly an increase in supply to meet the demand which will ultimately lead to growth and increased employment.

Both policies will increase demand. Both will reduce the tax payments for individuals, thereby increasing disposable income and then increase consumption, which accounts for about 70% of total demand in the economy. Which policy will lead to an increase in supply?

Assemblyman Geenwald’s policy will do very little, if anything to increase supply. Businesses’ property tax relief will likely be negligible and may be zero if they lease rather than own space or if the tax cut is geared to residential property taxes only. They therefore do not have the additional capital to expand. This will cause a drag on increasing supply.

Governor’s Christie’s plan, on the other hand, would have reduced income tax payments for all income earners which will increase disposable income and eventually consumption. But his plan would have made it easier for business to expand and increase supply since all income earners, especially those with high incomes, will have had more capital to invest.

On the issue of tax relief, Christie said his plan is fairer. Greenwald noted that many New Jerseyians would receive only a $20 tax cut, while high income earners would see their taxes cut by more than $9,000. Another tax cut for the rich, Greenwald argued.

Christie would say that Greenwald is correct. If someone pays only $200 per year in state income tax currently, then a 10% tax cut will equal $20 and if someone earned $1 million dollars and paid almost $90,000 per year in state income tax, they would receive a $9,000 tax cut. The bottom line is the tax cut is exactly the same percentage for all New Jersey State income tax payers so obviously the highest income tax payers will receive the highest dollar tax cut. But since everyone has their tax liability reduced by the same percentage, his cut is fairer and better for the New Jersey economy.

In the end, mostly for political reasons, the governor gave in and agreed to the property tax cut. But is this the best policy for the majority of New Jerseyians?

Michael Busler is an Associate Professor of Business Studies at Richard Stockton College.

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