What is the governor’s economic policy? He summed it up during a recent interview with Bloomberg radio, “We’re here to shrink the size of the public sector and grow the size of the private sector.” Simply stated, smaller government equals more growth.
In a state where government payrolls have outstripped the private sector during Republican and Democratic eras, serious cutbacks seem overdue, especially at the municipal level. But how does cutting public sector jobs stimulate private sector jobs?
In the same interview, the governor said “New Jersey is one of the most heavily taxed states in the country. The Democrat’s proposals in the past ten years have raised property taxes more than 70 percent, and in the past six years the Corzine administration resulted in the loss of $70 billion in wealth from the state.” And how to lower taxes? Coupled with a 2.5 percent cap on property tax increases, Christie would cut the top income tax rate from 9 percent “so that New Jersey can compete with Pennsylvania’s 3 percent top income tax rate.”
Maybe then our over-taxed millionaires will stay at home instead of migrating westward across the Delaware.
According to recent reports, we have a lot of potentially itinerant millionaires. Fully 6.93 percent of New Jersey households have “liquid assets” greater than $1 million. That comes to 212,396 Garden State households. Only Hawaii and Maryland, where those well-paid lobbyists reside, have a greater concentration of the very wealthy.
Tax cutting to reduce the size of government is not exactly unconventional wisdom these Tea Party days. “Starving the beast,” antitax activists hope, brings increased spending power for taxpayers. That will entice more investment and hiring. And with more jobs come increased tax revenues – even after tax rates are sliced.
What does that scenario sound like? For those of a certain age, it’s Reagan Era supply-side economics. That hypothesis promised lower taxes and increased revenues on the theory that cutting taxes induces growth that more than pays for itself. Trouble is, the theory didn’t work. Instead of budget surpluses, we got huge deficits, later dwarfed by the further tax cutting by President George W. Bush and congressional Republicans.
Actually, there is plenty of evidence that selective tax increases will stimulate the economy and promote private-sector job growth. We saw this during the go-go 1980s, when New Jersey raised taxes on gasoline and higher income earners. All of these tax increases were passed by a Democratic-controlled legislature and signed into law by Republican Gov. Tom Kean — hands down New Jersey’s most popular governor and one of Chris Christie’s early supporters. Kean won his party’s nomination on a strict supply-side platform straight out of the Reagan playbook. He later changed course when faced with the fact that deep budget cuts would mean reduced state services, lower quality of life and stalled economic growth.
And consider that President Clinton and Democrats in Congress — before the 1994 Gingrich revolution — enacted a long list of tax increases that helped support the longest period of sustained economic expansion in our history.
Let’s bring it back home – or close to home. Despite Pennsylvania’s low income tax, its economy isn’t exactly humming along. And it’s not in the Top 15 for resident millionaires. New York City residents, meanwhile, pay the highest state income taxes, as well as a municipal income tax. Yet New York’s economy is rebounding from the Great Recession, thanks to a resurgent Wall Street, financed in no small part by billions of taxpayer dollars.
The evidence that cutting income taxes will stimulate growth is at best ambiguous. But there is an even more fundamental problem with the governor’s plan, as numerous commentators have observed. Every dollar of revenues from New Jersey’s income tax is constitutionally dedicated to property tax relief and public education — thanks to Gov. Brendan Byrne and the Democrats in 1976 — so how can reducing the income tax on the state’s wealthiest lower property taxes on the rest of us?
The governor has a choice: If he wants to stimulate the economy and reduce property taxes — not simply limit the rate of increase — he must maintain, even raise, the top income tax rates on the wealthiest. As unthinkable as that may sound, the governor might do well to recall what Tom Kean did in a similar circumstance: Turn aside from the antitax rhetoric that got him elected and do what works when in office.