By the Numbers: Analyzing New Jersey's Tax and Budget Growth
Property taxes dwarf state's major taxes; combined state-federal spending hits record $49 billion.
For the past three months, Republican Governor Chris Christie and Democratic legislative leaders have been trading charges over their rival plans to cut income and property taxes, over the governor’s claim that he has cut billions in state spending, and over the Christie administration’s projections that revenues will come in 7.5 percent higher next year despite $345 million in planned corporate and income tax cuts.
Publicly, the biggest debate has been over whether to cut property taxes or income taxes, with polls consistently showing that New Jerseyans would prefer a property tax cut. It’s not surprising: The $26 billion that New Jerseyans will pay in property taxes next year is more than the total of state income taxes, sales taxes, corporate income taxes, inheritance taxes, gas taxes, motor vehicle fees, cigarette taxes, and liquor taxes combined. Since 1999, property taxes have grown 50 percent faster than income and sales taxes.
But just as important is the question of revenue projections. Last year, Christie and state Treasurer Andrew Sidamon-Eristoff were conservative in their revenue estimates, rejecting a Democratic budget bill that anticipated an additional $500 million in revenue to fund increased school aid and other programs. Christie and Sidamon-Eristoff were proved right, as revenues this year lag about $100 million below administration forecasts -- and $600 million below what the Democrats wanted to send.
This year, however, Christie and the Democrats are equally bullish on revenue growth: Christie anticipates using $180 million in revenue growth this year and $1.4 billion by Fiscal Year 2016 to pay for his promised 10 percent income tax cut. Democratic Senate President Stephen Sweeney (D-Gloucester) and Assembly Majority Leader Lou Greenwald (D-Camden) are planning to divert the same $1.4 billion toward their 10 percent and 20 percent property tax credits on the income tax.
A bipartisan team of high-ranking former state government officials warns in its Facing Our Future report that New Jersey cannot afford any of the proposed tax cut plans because of future spending needs. Meanwhile, to the chagrin of Democrats, Christie has been campaigning across the country, claiming that he cut billions of dollars in state spending
What is the truth? This package of charts, dating back 14 years, provide perspective on some of the major spending and revenue issues in the budget.
When governors and legislators talk about the state budget, they are referring to the $28 billion to $33 billion raised each year through state taxes. But the budget they approve by June 30 each year also includes $8 billion to $13 billion in federal aid -- New Jersey’s share of various programs approved by Congress -- and $4.5 billion to $6.5 billion in “other state revenue.” This “other state revenue” is mainly Transportation Trust Fund money for highway and mass transit projects that comes out of the gas tax and toll revenues, plus the hundreds of fines and fees paid by citizens and businesses that are supposed to be dedicated to specific purposes, but that are often diverted to balance the budget as needed. With federal aid and “other state revenue” added in, New Jersey’s annual state spending is actually in the $44 billion to $49 billion range.
So how does total state spending under Christie compare with past years? The total spending Christie has proposed for Fiscal Year 2013 is actually $49.185 billion -- the highest combined state-federal budget in history of New Jersey and a whopping $1.6 billion more than the previous record of $47.556 billion set under his liberal Democratic predecessor, Jon Corzine, in Fiscal Year 2008, as the state was lurching into the Great Recession.
What is Christie’s overall record on cutting total state spending? In Christie’s first budget year (FY2011), total state spending was $45.941 billion -- a $620 million reduction over the previous year, when both Corzine and Christie had made cuts to balance the budget in the face of declining state revenues. State tax revenue actually grew by more than $350 million that year, but Christie had to make up for a $1.2 billion reduction in federal stimulus aid provided by the Obama administration that went primarily to school aid. Christie balanced his budget by cutting school aid by $850 million that year.
In Christie’s second budget, total state spending this year (FY2012) is projected to rise almost $850 million to $46.790 billion -- the third-highest total in state history after Corzine’s FY2008 budget.
Christie isn’t the first governor to ignore total state spending figures when discussing his fiscal record. When Corzine said during his losing reelection campaign that he cut the state budget from $33.6 billion in his second year to $30.8 billion in his third year to $29.8 billion in his fourth year, he did not mention that federal aid -- particularly Obama’s federal stimulus money – was increasing by almost $3 billion at the same time. Thus, the actual cut in combined state-federal spending was actually just under $1 billion – just over 2 percent of the total budget.
From the end of the administration of Republican Gov. Christine Todd Whitman through the second year of the Democratic Corzine administration, state tax revenue grew every year from less than $20 billion in FY2000 to more than $33.6 billion in FY2008, when the Great Recession hit.
This eight-year revenue increase represented not only economic growth, but also a major corporate tax increase and a hike in the top income tax rate from 6.4 percent to 8.97 percent for “half-millionaires” by Democratic Gov. Jim McGreevey, followed by an increase in the sales tax from 6 percent to 7 percent by Gov. Corzine. When the recession hit, Corzine imposed the 8.97 percent rate on those making $400,000, increased the rate to 10.25 percent for those making $500,000, and added a top bracket of 10.75 percent for those making $1 million or more. Nevertheless, state revenue plummeted from $33.6 billion in FY2008 to $30.8 billion in FY2009 to a low of $28.9 billion in FY2010, Corzine’s last year.
Under Christie, state revenue has increased each year to $29.283 billion in FY2011, to $29.691 billion this year, and to an anticipated $31.858 billion next year -- despite two years of corporate tax cuts totaling $370 million in lost revenue and the anticipated $180 million loss in income tax revenue under what Christie hopes will be the first stage of his planned 10 percent income tax cut.
State income tax revenues jumped from $7.2 billion in FY2000 to $12.6 billion in FY2008 before diving to $10.4 billion in FY2009 and FY2010, despite a surcharge approved by Gov. Corzine and his Democratic-controlled legislature raising the top rate to 8.97 percent on income above $400,000, 10.25 percent above $500,000 and 10.75 percent above $1 million in 2009 and 2010. That income tax surcharge on the wealthy sunset in January 2010, and without it, income tax revenue hit a six-year low of $9.945 billion in FY2011, Christie’s first full year in office.
Christie has twice vetoed Democratic efforts to reinstate the so-called “millionaire’s tax.” Regardless, New Jersey has one of the most graduated income taxes in the country, with individual tax rates ranging from 1.4 percent on income up to $20,000, to 6.37 percent on $75,001 to $500,000, and to 8.97 percent on $500,001 and above. For families, the tax brackets double; the 6.37 percent bracket, for example, kicks in on family income of $150,001 and above.
As a result of the highly graduated tax brackets, New Jersey’s wealthiest 1 percent of taxpayers pay about 40 percent of all income taxes, and as a consequence, New Jersey’s income tax collections fluctuate more wildly than most states depending on the vagaries of Wall Street and corporate bonuses. As one former state Treasury official quipped, “When Wall Street sneezes, the New Jersey state budget gets the flu.” Or, when Wall Street gets well, so does the New Jersey state treasury. The Wall Street rebound last year is expected to pump up state income tax revenues by $1.2 billion to $11.132 billion this year and income tax revenues are expected to grow another $600 million next year to $11.836 billion, even with the first stage of Christie’s proposed income tax cut factored in.
PROPERTY TAX VS. INCOME TAX
New Jersey’s income tax will have grown 64 percent from $7.205 billion in Fiscal Year 2000 during Republican Governor Christine Todd Whitman’s second term to $11.836 billion next year, but it isn’t New Jersey’s fastest-growing tax over the past 14 years.
Property taxes grew 94 percent -- almost doubled -- from $13.5 billion in 2000 to a projected $26.2 billion in 2012, assuming that the 2 percent cap now in place holds property tax increases to that level.
By comparison, the sales tax, the state’s second-largest source of revenue, has grown 60 percent from $5.5 billion in FY2000 to an anticipated $8.8 billion in Christie’s projected budget for next year. The New Jersey state sales tax was raised by Democratic Governor Jim Florio to 7 percent in FY1991, cut back by the Republican legislature elected in the anti-Florio tax backlash to 6 percent in FY1993, and raised back to 7 percent by Democratic Gov. Corzine in FY2007 after a budget showdown with the Democratic Assembly that led to a shutdown of state government.
Corzine’s increase also extended the sales tax to more than $400 million in services, recognizing that New Jersey’s sales tax, like most states, was outdated because it mainly taxed goods like automobiles and electronics, while the nation was moving increasingly to a service-based economy. Overall, New Jersey’s sales tax is one of the most progressive in the nation because it exempts food, clothing, and other necessities.
New Jersey will collect more money in property taxes ($26.125 billion) than in state income taxes ($11.836 billion), sales taxes ($8.829 billion), corporate income taxes ($2.666 billion), gas taxes ($565 million ), motor vehicle fees ($466 million), inheritance taxes ($713 million), cigarette taxes ($274 million) and liquor taxes ($108 million) combined.
School taxes, which grew from $7.3 billion in 2000 to an anticipated $13.7 billion this year, make up more than half of the total property tax bill -- 52.4% to be exact. Municipal taxes, which rose from $3.6 billion in 2000 to an expected $7.7 billion this year, make up 29.4 percent of the total, and county taxes, which jumped from $2.6 billion to $4.7 billion, make up the remaining 18 percent.
The relative weight of school, municipal, and county property taxes varies widely from county to county, with school taxes often topping 60 percent of the property tax mix in suburban counties with low crime, while municipal taxes fall heavier in poorer cities, where state aid covers most school costs.
Democratic Gov. McGreevey more than doubled corporate income tax revenues in his first budget in FY2003 by imposing a minimum tax on corporations even if they did not make a profit. This tax increase was regarded as so anti-business that Democratic Gov. Corzine and a Democratic legislature later repealed it.
While Christie and the Democratic-controlled Legislature implemented a series of corporate tax cuts last year, New Jersey’s top corporate income tax rate of 9 percent is still one of the highest in the country, and corporation income tax revenues are projected to climb to $2.666 billion next year -- still more than $300 million below collections from FY2006 to FY2008.
CASINO AND LOTTERY REVENUES
New Jersey’s main sources of gambling revenues have posted opposite performance records. New Jersey lottery revenues have grown steadily from $736 million in FY2000 to an anticipated $1.095 billion next year, boosted by the willingness of governors and legislatures to add new games and include the state in high-paying multistate lotteries.
Casino revenues, however, have dropped for six consecutive years from a high of $667 million in FY2006 to just $247 million in this year’s budget. The dive in revenue was caused by changes adopted by Democratic Gov. Richard Codey and the legislature to try to make Atlantic City more competitive, but the recent slide is attributable to a combination of the recession and, more ominous, the explosion of new gambling competition from “racinos” in Delaware and Pennsylvania, along with the rise of Indian casinos in other states.
Christie is anticipating that casino revenues will increase by $40 million next year due to the opening of the new Revel casino and a major Atlantic City advertising campaign.
GASOLINE TAX AND MOTOR VEHICLE FEES
Gasoline taxes and motor vehicle fees have risen slowly over the past 12 years. New Jersey’s gas tax is 10.5 cents a gallon and one of the lowest in the nation; because it is a per-gallon tax, it does not rise with gas prices, which have soared in recent years. Gas taxes are projected to bring in $565 million next year, just 11 percent more than in FY2000. Motor vehicle fees are projected to bring in $466 million next year, which is $83 million, or 21.7 percent, more than in FY2000. To put those increases in perspective, overall state spending and state tax revenues both rose more than 50 percent during that same time period.
New Jersey’s inheritance tax has been a relatively consistent revenue source, growing from $485 million in FY2000 to a high of $698 million in FY2008. It fell to a six-year low of $581 million in FY2010, but it bounced back to previous levels in Christie’s first two years, and the Republican governor projects an increase next year to $713 million, which would be a new record.
Many Republicans nationally and locally denounce the inheritance tax as a “death tax” and call for its repeal; some New Jersey Republicans argue that the exodus of wealthy taxpayers from New Jersey is partially a result of their seeking residency in states without inheritance taxes.