New Jersey Fiscal Crisis: Foreshadowing Oregon?
Posted on ThinkOregon.com
February 12,2010
ThinkOregon in Economy, Government Spending, Jobs, Measures 66 & 67, National, Taxes.
Tax policy matters to those who have money and pay the majority of taxes... and the state of New Jersey is learning that lesson the hard way. Yesterday, Reuters reported that Governor Chris Christie declared a "fiscal emergency," allowing him to reserve or freeze state spending as part of his plan to tackle one of the largest 2011 deficits among U.S. states.
"These are among the hardest decisions any governor could be called upon to make," said the Republican, according to a copy of his speech to legislators in a special session.
The deficit in the current budget, which ends on June 30, is $2.2 billion, while the gap in the following budget has spiked to $11 billion from a forecast of $8 billion in November, Christie said in his first major policy address to state lawmakers.
Next year's deficit is the largest per-capita budget shortfall of any U.S. state, said Christie who is scheduled to deliver his budget for the coming fiscal year on March 16.
In a related story, last week NJ.com reported that New Jersey has lost $70,000,000,000 in wealth in the past five years as a result of the adoption of punitive tax policies:
More than $70 billion in wealth left New Jersey between 2004 and 2008 as affluent residents moved elsewhere, according to a report released Wednesday that marks a swift reversal of fortune for a state once considered the nation’s wealthiest.
Conducted by the Center on Wealth and Philanthropy at Boston College, the report found wealthy households in New Jersey were leaving for other states — mainly Florida, Pennsylvania and New York — at a faster rate than they were being replaced.
“The wealth is not being replaced,” said John Havens, who directed the study. “It’s above and beyond the general trend that is affecting the rest of the northeast.
This was not always the case. The study – the first on interstate wealth migration in the country — noted the state actually saw an influx of $98 billion in the five years preceding 2004. The exodus of wealth, then, local experts and economists concluded, was a reaction to a series of changes in the state’s tax structure — including increases in the income, sales, property and “millionaire” taxes.
“This study makes it crystal clear that New Jersey’s tax policies are resulting in a significant decline in the state’s wealth,” said Dennis Bone, chairman of the New Jersey Chamber of Commerce and president of Verizon New Jersey.
Wealthy residents are a key driver for everything from job creation and consumer spending to the real estate market and the state budget, said Jim Hughes, dean of the Edward J. Bloustein School of Planning and Public Policy at Rutgers University. In New Jersey, the top 1 percent of taxpayers pay more than 40 percent of the state’s income tax, he said.
“That’s probably why we have these massive income shortfalls in the state budget, especially this year,” he said.
Until the tax structure is improved, he said, “we’ll probably see a continuation of the trend, until there are no more high-wealth individuals left.”
Even after Oregon voters approved $733,000,000 in new, retroactive and permanent on Oregon businesses and individual employers, the state reported additional revenue shortfalls... to the tune of $183,000,000. As Portland Business Journal reported on Monday, additional taxes on wealthy individuals can produce a dramatic (negative) impact on state tax receipts:
As always, Potiowsky listed several risks. This time, one of the risks includes the passage of Measure 66, which added a new tax bracket for upper-income earners. Potiowsky said even though the new bracket affects a small group of residents, it’s a potentially volatile change.
“In past years, the relatively small number of taxpayers impacted by the measure — 2 percent to 3 percent — regularly accounted for two-thirds of the change in tax revenues from one year to the next,” Potiowsky said. Any small shifts in the economy “can yield large changes in income tax collections.”
Potiowsky noted that 2009’s fourth quarter marked the seventh consecutive quarter of job losses. His office forecasts a 0.5 percent drop in total employment during 2010’s first quarter. The office believes the decline will reach 1 percent by the end of the year but return to 2 percent growth in 2011 and 2.8 percent in 2012.
In the meantime, Portland passes a $600,000,000 bike plan... pushes ahead with a $1,400,000,000 lightrail/pedestrian/bike bridge over the Willamette... and rolls out an iPhone app so citizens can report road repair issues.