Confronted with a $274.9 million deficit left over from last year’s budget, bond downgrades, and a wave of Atlantic City casino closures that threaten to undermine this year’s revenue projections, the Christie administration yesterday announced a two-month limited tax amnesty that could potentially raise hundreds of millions of dollars. In fact, New Jersey’s last tax amnesty in 2009 raised a record $725 million.
For Gov. Chris Christie, a former U.S. Attorney who previously criticized repeated reliance on tax amnesties as a bad practice that encourages tax evaders to wait for the next amnesty to pay up, the decision to implement a tax amnesty is a major concession, even if this is a limited amnesty that waives penalties — and not the interest — on back taxes owed.
The state Treasury Department announced the limited tax amnesty by press release without any fanfare while Christie, a likely 2016 Republican presidential candidate, was campaigning in the key primary state of New Hampshire for the third time in four months in his capacity as chairman of the Republican Governors Association.
“This is an opportunity for taxpayers who have unresolved tax debt to clean up their accounts and start fresh,” state Taxation Director Michael J. Bryan announced. “Under New Jersey statutes, all taxpayers can request consideration for relief from penalties, when appropriate. We are just trying to make the process easy and attractive this fall.”
Joseph Perone, communications director for the Treasury Department, insisted last night in an email that the announcement does not constitute an “amnesty” in the traditional definition.
“The taxpayer still has to pay interest, just no penalty,” Perone said. “An amnesty requires legislative approval and often involves a negotiation of the principal and interest owed.
This is not an amnesty. It is an initiative within the statutory discretion of the director of the Division of Taxation.”
However, Bryan’s announcement clearly constitutes a tax amnesty in that it provides both businesses and individuals an opportunity to settle outstanding tax liabilities from 2005 to 2013 with reduced or limited penalties, no collection costs, no recovery fees, and without fear of future criminal prosecution.
The announcement gives taxpayers until November 17 to visit the division’s website in order to enter into a closing agreement and make a payment that would satisfy all back taxes owed.
Legislators from both parties quietly explored the possibility of implementing a fall tax amnesty as a potential one-shot revenue fix when a plunge in income tax revenues last April forced Christie to cut a total of $2.4 billion in planned pension payments for the 2014 and 2015 fiscal years.
However, Christie privately made it clear at the time that there would be no tax amnesty, and Treasurer Andrew Sidamon-Eristoff told legislative budget committee members that he regarded periodic tax amnesties as bad public policy that encouraged businesses and individuals to shirk their tax obligations.
During his first campaign for governor in 2009, Christie excoriated former Democratic Gov. Jon Corzine for implementing a tax amnesty to help fill a massive budget shortfall in the wake of the Great Recession.
“It is now clear that Jon Corzine has no control over the budget or our government,” Christie told The New York Times. “He promised four years ago to change the way Trenton budgeted, but this budget uses billions in one-shot gimmicks — including this latest tax amnesty windfall — that will have to be made up in future budgets. This kind of haphazard governing by chance just doesn’t cut it when we’re facing 8.8 percent unemployment, skyrocketing property taxes, and real pain for all middle-class New Jerseyans.”
Christie’s criticism was muted a few days later when Corzine announced that his Treasury Department had opened envelopes containing more than $200 million in checks in just one day, en route to a record $725 million windfall that enabled the Democratic governor and Legislature to restore payment of property tax rebates it had reluctantly cut heading into an election year. Democrats went on to maintain control of the Legislature without the loss of a single seat, but Christie still ousted Corzine from the governorship.
State governments increasingly turned to tax amnesties in recent years, with Louisiana and Connecticut raising $295 million and $180 million respectively in the fall of 2013.
While estimating New Jersey’s projected tax collection is difficult, particularly with the Treasury Department not providing any information on whether it plans to implement a major marketing campaign to drive up compliance and revenue collections, the November 17 closing date guarantees that receipts from the tax amnesty will be tallied as the Christie administration puts together its plans for the upcoming Fiscal Year 2016 budget.
Christie’s tax amnesty would come just five years after the 2009 amnesty, compared with a seven-year gap between Corzine’s 2009 amnesty and Democratic Gov. Jim McGreevey’s 2002 initiative. However, Christie’s amnesty stretches back nine years to 2005, taking in the mid-decade Wall Street boom.
Corzine’s treasurer, David Rousseau, projected $100 million originally, then $200 million, from the 2009 amnesty and was shocked when $725 million came in.
New Jersey has made more money from each of its four tax amnesties. Republican Gov. Thomas H. Kean pulled in $87 million with the first amnesty in 1987, GOP Gov. Christine Todd Whitman collected $244 million in 1996, and McGreevey tallied $277 million from his 2002 amnesty.
Nationally, tax amnesty has not been a partisan issue. Louisiana GOP Gov. Bobby Jindal, who collected $295 million last fall, is banking on another $100 million from an amnesty this fall to pump up higher education funding this year. Like New Jersey, Louisiana last ran a tax amnesty in 2009.
Kentucky — home state to U.S. Sen. Rand Paul, a leading GOP presidential contender who has sparred with Christie in the past — ran a tax amnesty in 2012, as did Texas under Gov. Rick Perry, also a Republican presidential hopeful. Michigan, under GOP Gov. Rick Snyder, conducted a tax amnesty in 2011, and Corzine had plenty of company in 2009 when New Jersey was one of just 12 states to use tax amnesties to close post-recession budget deficits.
Connecticut Democratic Gov. Daniel P. Malloy, a frequent critic of Christie’s tax-cut philosophy, raised $180 million with a two-month tax amnesty that ended last November. Connecticut’s amnesty, however, gave delinquent taxpayers the opportunity to apply for a 75 percent interest reduction to go along with a waiver of all penalties — a more attractive offer than the one the Christie administration announced yesterday.