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Op-Ed: Tax Cuts Won't Produce the Jobs New Jersey Needs

Gordon MacInnes | April 25, 2013

New Jersey’s leaders should make investments in proven ways to grow the economy instead of continuing to focus on reducing taxes.

Efforts to cut taxes died last year at the hands of lousy revenue collections and New Jersey’s slow crawl out of the recession, both of which made it apparent we need more resources to meet our needs, not fewer. But like a zombie, the tax cuts are back on center stage in Trenton. Like last time around, they are the wrong prescription for our ailing economy and won’t deliver the jobs that New Jersey needs.

First comes the “invisible” tax cut in the upcoming year, followed by a phased-in “real” tax cut over the next three years. Gov. Christie wants to give every New Jersey homeowner and renter with a taxable income up to $400,000 a credit of $100 when they file their 2013 taxes next April. That’s right, $100 -- $1.96 a week. Call it the “One-Whopper Jr.-A-Week (sales tax included) Tax Cut.” When property taxes average $7,800 yearly, trimming $100 won’t make a major difference. The total cost of all this largesse is estimated to be about $200 million in a $33 billion budget -- a cost that legislators may ultimately decide is “affordable” in next year’s budget.

But it’s the second stage of the proposal that should set off the alarm bells, with the lost revenues eventually rising to $1.6 billion in the fourth year -- and every year thereafter -- as the tax credit rises to 10 percent of the property taxes you pay (capped at $1,000 a year).

There’s a better path for our state to follow: an alternative vision that stresses the importance of making the investments in our schools, workers, and transportation system that will restore the foundation of a strong and enduring economy for New Jersey. These investments are proven economy strengtheners and job creators.

Still Struggling to Recover

By just about any measure, New Jersey is at the back of the pack in recovering from the Great Recession. Next door, New York has recovered all of the jobs it lost during the recession and added 32 percent more; Pennsylvania has recovered 71 percent. In New Jersey only 46 percent of the jobs are back, and many of them pay less than those we lost. We are 47th in economic activity among the 50 states and have the seventh-highest jobless rate. Those numbers add up to one thing: Whatever we’re doing, it’s not working.

To date, the sole answer from the administration has been to cut taxes, and the Legislature has basically tagged along. The main beneficiaries so far have been corporations, which will get $2.3 billion in tax cuts over five years and have feasted on subsidies for promising to retain or create jobs.

At this point, most of these subsidies have gone to Jersey businesses that shuffle jobs from one town to another, or down the block. In just three years, the state has granted $2.1 billion in subsidies, compared to just $1.25 billion in the previous ten years. While we can’t completely abandon subsidies because they’re an unfortunate part of the interstate competition for jobs, we need a more balanced approach to growing the economy and creating jobs that recognizes the need for more investment in schools, healthcare, and public higher education.

Learning From Our Losses

Not long ago, New Jersey was a magnet. Businesses and entrepreneurs came here because they saw the opportunity the state offered for research, innovation, and science as the path to prosperity and well-paying jobs. AT&T headquartered its Bell Labs and its Nobel Laureates here, along with Exxon, RCA, Schering-Plough, Merck, Warner-Lambert, Roche and many other companies that located their primary research facilities in New Jersey. They knew our economic foundation was solid, with skilled workers and inviting communities. That’s the sort of incentive we need to get back to.

In the past two years, two large pharmaceutical companies -- Roche and Sanofi-Aventis -- pulled their major research facilities out of New Jersey. If our problem is that taxes are too high, these thousands of highly compensated research jobs would have ended up in Wyoming, Alabama, or some other low-tax state. But they moved, instead, to three of the most expensive cities in America -- San Francisco, Cambridge, and New York – in relatively high-tax states. What attracted these companies? The things that wise investment of public resources can make possible:

  • World-class research universities that include medical schools and teaching hospitals to aid drug trials;
  • Pleasant suburban communities with vibrant commercial centers, parks and recreational facilities, convenient transit to the city, and excellent public schools;
  • A highly educated workforce;
  • A welcoming culture for well-educated, enterprising people that includes amenities like restaurants, theater, and music.

New Jersey Is Ignoring Its Assets

New Jersey doesn’t have the equivalent of Manhattan, Boston, or San Francisco, but it’s got everything else on this list. Here’s a reminder of the critical advantages we bring to attracting the best jobs: + The highest proportion of researchers, scientists and engineers of any state labor force; + Easy access to New York and Philadelphia: + Great residential communities with pleasant downtowns, parks, good transit to the cities, and public schools that rank second in the nation in excellence, behind only Massachusetts; + Two global research universities (Rutgers and Princeton); + A diverse, productive, savvy population that attracts strivers from around the world;

For the past three years, the governor and legislative leaders have devoted little attention to these New Jersey assets.

Instead of celebrating the facts that New Jersey students are more likely to graduate high school, perform in the top three of states on national tests, and are picked for the most selective colleges in the country, public schools have been criticized, teachers contributions’ dismissed, and increased standardized testing glorified.

Rutgers’ merger with the University of Medicine and Dentistry propels it into the top 25 of American universities for research grants and opens the door to all sorts of public-private partnerships. But that is ignored in a proposed state budget that flattens support for public colleges, despite the governor’s promise that when revenues rise, higher education would be the first beneficiary.

Public colleges and universities provide affordable higher education for more than 355,000 New Jersey residents. But maintaining affordability relies on adequate public support for operating costs. New Jersey has been neglecting this responsibility for almost 20 years, shifting the burden to students and their families in the form of higher tuition. In the last 10 years, tuition at New Jersey four-year colleges has jumped by $584 million, while state support has declined by $162 million, or $331 million adjusted for inflation. In other words, almost a billion dollars has been shifted from public support to family checkbooks.

The roads, bridges, and rail lines that make New Jersey a family-friendly home for people who want to be close to New York and Philadelphia are overburdened and falling into disrepair. The governor’s 2010 rejection of a proposed Hudson River rail tunnel only worsens the expensive bottleneck for train service to New York and New England, and there’s been nothing done to improve mass-transit infrastructure elsewhere, even as more New Jerseyans use trains and buses each year.

Investing in our Future to Compete Effectively for Jobs, Growing Economy

Investment hardly appears in New Jersey’s political dialogue. Yes, the 2012 higher education bond issue was a welcome acknowledgement after 23 years that New Jersey must modernize its campuses. At $750 million, it is, however, an exceedingly modest contribution to a backlog of repairs, maintenance, and construction cautiously estimated to exceed $6 billion.

New Jersey Policy Perspective will produce a series of reports and analyses that offer alternatives to diverting scarce tax dollars to unaffordable tax cuts. We will begin with a report today by Ezra Levin and Benjamin Horowitz on expanding preschool opportunities in the state.

While few think of three year-old kids when the subject is productive public investments, providing children with high-quality education early in life is one of the most productive investments we can make.

Today, half of the three- and four-year olds from poor families -- the kids who benefit the most from preschool -- are not found in Newark or Camden but in middle- and working-class places like Bound Brook, Freehold, and Linden. If just half of the tax cut proposed for 2014 were invested in preschool, more than 10,000 children could be given a crucial head start in school and beyond.

Cutting tax rates won’t restore jobs and prosperity. We should be talking about the investments that will work, starting with preschool.

Gordon MacInnes is president of New Jersey Policy Perspective, a nonpartisan, nonprofit organization founded in 1997 to conduct research and analysis on crucial issues facing New Jersey.

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