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Budget Expert: Income Tax Cuts Will Benefit the Rich

Mark J. Magyar | January 31, 2012

Christie defends cuts in rebate program that led to 20 percent hike in net property taxes.

Sen. Paul Sarlo (D-Bergen), Senate Budget Committee chairman

The debate over income tax cuts vs. property tax cuts took center stage in Trenton yesterday, as Governor Christie defended his decision to chop property tax rebates, while Democrats and Republicans on the Senate Budget Committee sparred over whether Christie's income tax cut would simply benefit the rich.

"The fact of the matter is we had to reduce the property tax rebate program because we had overspent our budgets by an extraordinary amount of money in the years before we came here," Christie said in response to a question about an NJ Spotlight report that showed that the average household paid $1,275 -- or 20 percent -- more in net property taxes in 2011 than it did two years earlier because of deep cuts in the rebate program.

State revenues are now improving, but Christie decided to propose a 10 percent across-the-board income tax cut in his State of the State speech, rather than urge restoration of property tax credits to the $1,000-plus per household provided by his Democratic predecessor, Jon Corzine, during the last three years of his administration. Christie's income tax cut would cost the state an estimated $1.35 billion in lost revenue, while restoring the full property tax rebates would cost about $1.1 billion.

Christie made the wrong choice, Senate Budget Committee Chairman Paul Sarlo (D-Bergen) contended.

"Property taxes, not income taxes, are hurting the middle class," Sarlo asserted, noting that Christie cut the property tax rebate program over the objections of Democratic legislators. "We're spending a lot of time talking about a 10 percent income tax cut when we should be talking about a 10 percent property tax cut."

In fact, the $1,275 increase in net property taxes over the first two years of the Christie administration is more than the entire income tax bill of $1,124 paid by a New Jersey family of four earning $75,000, according to statistics provided to the Senate Budget Committee yesterday by David Rosen, budget officer for the nonpartisan Office of Legislative Services.

That family making $75,000, however, would receive just $112.40 from Christie's 10 percent income tax cut.

"The question isn't, 'Who will pry money out of the cold, dead hands of legislators?'" Sarlo said, reciting a popular Christie YouTube line. "It is, 'Whose bank accounts will be the big winner under the governor's proposal?'"

Based on Rosen's analysis of Christie's proposed income tax cuts, Sarlo noted, "A family earning $50,000 per year will save $80.50; a famiy with a $100,000 income will save $275. At the other end of the income spectrum, millionaires will get a tax break of $7,265.75, and those earning $3 million would get a windfall of $25,200. In other words, working families won't get enough for their weekly groceries, while millionaires will receive enough to vacation at five-star resorts on the French Riviera."

Rosen reported yesterday that only New Jerseyans making over $200,000 pay more in income taxes than they do in property taxes. He cited a 2006 Treasury Department study that showed that families earning between $30,000 and $40,000 in gross income paid $4,232 in property taxes compared to just $439 in income taxes, and that even families making between $100,000 and $150,000 paid an average of $6,006 in property taxes compared to $2,971 in income taxes.

However, Senator Kevin O'Toole (R-Essex) defended Christie's income tax cut. "Governor Christie's income tax cut would provide a tax cut for every New Jerseyan, and that's fair," O'Toole said, ignoring Rosen's point that the rich would receive much larger income tax cuts. "If it's Governor Christie's initiative, a lot of people want to firebomb it just because it's his plan."

Christie made it clear during a Statehouse press conference yesterday that he remains committed to his plan to cut state income taxes, and that he believes the most effective way to cut local property taxes is by cutting spending.

"I am going to continue to look at ways to reduce property taxes, and Sen. [Steven] Sweeney and I as we speak are working on legislation regarding shared services," Christie said, referring to the Democratic Senate president from Gloucester County with whom he worked to impose a 2 percent cap on annual school district and local government spending increases.

"The way we are going to do it is by controlling spending at the municipal and county level. That is the only way to have long-term control and hopefully reduction of the cost," the governor said. "We need to get at the underlying problem, which is expenditures, which is what we have been doing and more effectively than any other administration in a bipartisan way with the legislature on the cap, on arbitration reform, on pension, and benefit reform."

The 2 percent cap, coupled with increased reliance on shared services, slowed the increase in property taxes to just 2.4 percent last year, but New Jersey still has the highest property taxes in the nation.

In comparison, New Jersey's income tax burden, Rosen testified yesterday, is $940 lower than Pennsylvania's for a family of four earning $50,000; $1,179 lower for a family earning $75,000; and $983 less for a family earning $100,000.

The gap in income tax burden between New Jerseyans and New Yorkers is even greater, Rosen reported. New Jersey families earning $50,000 pay $1,055 less, those making $75,000 pay $1,951 less; households earning $100,000 pay $2,413 less; and those earning $150,000 pay $3,250 less than their counterparts in New York State, and that doesn't include New York City taxes.

New Jerseyans pay higher income taxes than Pennsylvanians starting at the $150,000 level and higher amounts than New Yorkers at about the $400,000 range, however, and it is those higher income tax brackets that would benefit the most from Christie's proposed income tax cuts.

To Sarlo, that makes no sense. "The governor's tax cut plan is measuring up as a billion-dollar gift for the wealthy. This would be the second tax cut for the rich by the governor in only two years," he said, referring to Christie's refusal to support Democratic efforts to reinstate the "millionaire's tax," the temporary income tax surcharge on the wealthy that expired December 31, 2009.

"The richest one percent in America take home 24 percent of the income and they possess 40 percent of the nation's wealth. At the same time, tax rates nationwide have dropped by half for the richest of the rich. That begs the question: If the governor wants to cut taxes, why has he chosen to cut the income tax?" Sarlo asked, noting that 80 percent of New Jersey homeowners would rather see a property tax cut than an income tax reduction, according to a Monmouth University poll.

Christie said yesterday he is "always willing to take a look at the property tax credit program and how it looks going forward so it will benefit more people. But I don't believe in the long term that we will reduce property taxes by taking income tax money and subsidizing property taxes."

"We've tried these programs for 30 years and they haven't worked," he said. All they've done is give the counties and municipalities license to spend more money, because we are subsidizing them. The voters have gotten the idea here that it doesn't make sense to take money out of the right pocket in income tax and put less of it in the left pocket with credit or rebate and tell them they are better off. They are not."

Historically, Christie's point has some validity. In 1991, Democratic Governor Jim Florio's $1.2 billion increase in state aid was eaten up almost entirely in the first year by $900 million in property tax increases approved by school districts and local governments that went mostly to higher teacher and government employee salaries.

However, that could not have occurred under the 2 percent cap on local spending imposed by Christie with support from Sweeney and Democratic legislative leaders.

In addition, Christie changed the property tax rebate program two years ago to a property tax credit program that enables any increase in direct property tax relief to be deducted on a dollar-for-dollar basis directly from homeowners' property tax bills, and it is that mechanism that Democrats are expected to rely upon if, as expected, they propose a property tax cut to replace Christie's income tax proposal.

Mark J. Magyar is an Editor-at-Large for New Jersey Spotlight.

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