Republican Gov. Chris Christie seized the political initiative on the property tax issue yesterday, renewing his call for a $1,000 property tax credit on state income taxes to be phased in over four years and offering the Democratic-controlled Legislature the unilateral authority to block the tax cut at any stage if revenues fall short.
Christie, who is running for reelection in November, did not provide any details on how he would pay for the $140 million estimated first-year cost of his new tax cut plan. His Tax Day initiative comes just six weeks after the governor conceded he would have to push back this year’s $396 million property tax rebate program from February to August because his current-year revenue projections came up $400 million short.
“What, did the State hit the Powerball number?” Sen. Richard Codey (D-Essex) quipped, questioning where Christie planned to find the funding to pay for the tax cut. “If OLS [the non-partisan Office of Legislative Services] is right, he’s already $330 million short without a new tax cut. We need to be talking about revenue raisers, not revenue cuts.”
Sen. Barbara Buono (D-Middlesex), Christie’s Democratic challenger, dismissed the governor’s latest proposal as “political posturing.” She noted that the governor has twice vetoed legislation to raise the top state income tax rate from 8.97 percent to 10.25 percent on the state’s 16,000 millionaires to pay for property tax relief programs.
“If he really wants a tax cut, he should agree today to sign a millionaire’s tax that ensures we can pay for relief for working- and middle-class families,” Buono said at a press conference with Codey in Cedar Grove called to highlight the 20 percent rise in net property taxes for middle-income homeowners in the first two years of the Christie administration.
Buono insisted that she and Senate President Stephen Sweeney (D-Gloucester), who originally proposed the $1.4 billion four year property tax credit program that Christie endorsed last spring and again yesterday, are “on the same page” on tax cuts.
Sweeney said he had discussed Christie’s latest tax cut proposal with Buono yesterday morning, and said “nothing has changed” as a result of Christie’s latest Tax Day political foray. But Sweeney, in an impromptu Statehouse press availability yesterday, once again left the door open for possible legislative enactment of an election-year tax cut. “We said if the revenues work out we’ll do a tax cut. If they don’t, we won’t,” Sweeney said.
He said the “best numbers” will come next month when Christie’s Treasury Department releases its April revenue report, whose 2012 end-of-year income tax numbers will go a long way toward determining whether OLS is right that the Christie administration will close the year with a significant budget gap.
“Based on how we come out at the end of the year, that’s how we’ll make a decision,” Sweeney said.
A Laughing Matter
However, Assembly Speaker Sheila Oliver (D-Essex) and Assembly Budget Committee Chairman Vincent Prieto (D-Hudson) showed no inclination yesterday to take Christie’s offer seriously, reflecting the prevailing view of Democratic political analysts that an election-year tax cut would further strengthen Christie, who already holds a commanding lead over Buono.
Senate Minority Leader Thomas Kean Jr. (D-Essex) and Sen. Kevin O’Toole (R-Essex), the ranking Republican on the Senate Budget Committee, both expressed hope that they would be able to reach a compromise with Sweeney and a bloc of Democrats to pass a tax cut. That’s what they did in 2011 on a controversial pension and health benefits reform package that passed with Sweeney and a coalition of South Jersey, Essex and Hudson County lawmakers casting the deciding votes.
“After all, this is Sweeney’s plan,” Kean pointed out.
Christie yesterday once again conditionally vetoed Democratic legislation to return the state’s Earned Income Tax Credit for the working poor from 20 percent of the federal poverty line to 25 percent — the level it reached under former Democratic Gov. Jon Corzine before being scaled back by Christie in 2010 as part of a series of first-year budget cuts when state revenues nosedived in the wake of the Great Recession.
Christie, who has repeatedly held an increase in the Earned Income Tax Credit hostage to passage of a broader income tax cut, offered to restore the tax credit for the working poor to the higher level if Democrats would simultaneously approve a comprehensive property tax credit program similar to the one Sweeney proposed last spring as an alternative to the 10 percent across-the-board income tax cut offered by Christie in his 2012 State of the State Address.
The four-year property tax credit plan Christie unveiled yesterday would apply to taxpayers earning up to $400,000, as opposed to the $250,000 ceiling under the Sweeney legislation.
Extrapolating the Cost
While Christie did not offer any cost estimates for the program yesterday, it is possible to extrapolate the yearly costs based on the original OLS projections for the 2012 Sweeney plan, which was put together with a $1.4 billion final price tag to match the cost of the governor’s original income tax proposal. That $1.4 billion included the cost of a phased-in increase in the property tax credit for renters from $50 to $200, which is also included in the Christie plan.
Like the original Sweeney plan, Christie’s proposal calls for a maximum property tax credit of $1,000 — defined as up to a 10 percent credit on property taxes up to $10,000. That’s higher than the state average, but still well below the $15,000 to $20,000 average in many New Jersey suburbs.
While the original Sweeney plan called for a property tax credit of up to $167 in the first year, $500 in the second year, $833 in the third year, and the full $1,000 in the fourth year, Christie’s plan calls for a maximum credit of $100 in 2013, $400 in 2014, $800 in 2015, and $1,000 in 2016, the final year of implementation.
The first $100 property tax credit for homeowners in the current 2013 tax year would be taken as a direct deduction on state income taxes due in April 2014. That first cut, along with the first phase of the increase for renters and the increase in the Earned Income Tax Credit, would cost an estimated $140 million — less than the $183 million set aside by the Legislature last June in a special surplus fund to cover potential implementation of the Sweeney tax cut this past December. That $183 million was used to shore up the overall surplus when Christie’s revenue projections came up short in the last six months of 2012.
Christie has offered to find $140 million in cost savings elsewhere in the budget if Democrats are willing to enact the tax cut.
For Christie, if he is reelected in November, the bigger fiscal challenge would come in the FY2015 budget, when the cost of the program would jump from about $140 million to about $560 million, then double again to $1.12 billion in FY2016 before climbing to $1.4 billion for the FY2017 budget.
The cost of the property tax credit program, coupled with a $600 million annual increase in required spending for the state’s pension program through FY2018 and other built-in annual cost increases for retiree health benefits, for example, would eat up much of the projected annual increase in state revenue over the next three years.
Furthermore, the full cost for the property tax credit program would have to be covered in Christie’s February 2016 Budget Speech – at the same time that he has to come up with a five-year, $1.6 billion per year funding plan for the state portion of the Transportation Trust Fund that pays for highway, bridge and mass transit construction and repair programs.
That February 2016 Budget Speech would also come in the middle of the next Republican presidential primary campaign, in which Christie is widely expected to be a candidate.
Christie expressed no concern over the long-term costs of the tax cut when he discussed the plan on New Jersey 101.5 FM, a pro-Christie radio station, yesterday morning,
“Everybody who works and makes up to $400,000 a year would be getting a tax cut under this plan, and as you probably both remember, the big excuse for not doing this before was they weren’t sure if we had the revenue,” Christie said.
“Well, you see now that four months in a row we’ve exceeded our projections on revenues, and the economy’s really starting to come back here in New Jersey, but to try to take away the last pretext, the last excuse for doing this, I’ve said this: I put in the conditional veto that I’ve sent back to them today this provision: If they don’t believe the revenue is there to support it, they can pass a concurrent resolution from the Assembly and the Senate which does not need my signature stopping the tax cut at any time,” the governor said.
O’Toole, the Senate Republican budget expert, said the four-year phase-in would give the Christie administration adequate time to plan responsibly for the tax cut.
“We can phase this in the same way we’ve phased in the pension payments, exercising the proper fiscal discipline to control spending,” O’Toole said.
But Oliver, the Assembly Democratic speaker, was unconvinced.
“The governor has failed to reveal how he intends to finance the higher education restructuring act he demanded to have enacted last July, finance the future infrastructure needs of New Jersey and has failed to address New Jersey’s burgeoning unemployment rate,” she said in a statement. “Election year posturing to the citizens of our state is shameful.”