New Jersey Political Class Insanity and Stupid Math

Complete disclosure: I grew up in New Jersey and moved back to New Jersey after college to spend 22 years in a corporate job and another seven years starting and running a successful business. I left New Jersey for good in 2005 and moved to Florida. The primary motivation for moving out of state was the ever escalating taxes and ever dwindling value for the tax dollars paid. In 2005, we were paying over $12,000 a year in property taxes for a typical suburban house and that tax bill had been rising steadily, obscenely for years with no end in sight. We received virtually no services in return except for schools and roads, paying for our own garbage removal, being served by volunteer fire and rescue (who did a wonderful job), minimal parks, no library, and relying on state police stationed pretty far away to service our needs. Thus, when I talk about New Jersey taxes and politics, I do have some personal experience.

But if you do not believe me, consider some facts that were in an online US News and World Report article last month, an article written by Brandon Greiffe:

• New Jersey has the second highest sales tax rate in the country.
• New Jersey has the sixth highest corporate tax rate in the country.
• New Jersey has the highest property taxes in the country.
• New Jersey is near the top of all states in the amount of debt the state government is responsible for.
• New Jersey is number one when looking at how many college graduates leave the state after getting their diploma.
• New Jersey is 50th in the country relative to how much support they get back from Washington compared to how much Federal taxes New Jersey residents pay.

And now it appears, as quoted in the US News article and a Business Week online article, that in fiscal year 2011, New Jersey's budget of $29.3 billion will be about $10.7 billion short, based on current economic projections. In other words, next year New Jersey's expense stream will be about 50% higher than its revenue stream unless major budget action is taken. Since the state constitution requires a balanced budget every year, with unemployment higher than the national average and various state taxes already very high, this will be an extremely difficult thing to do.

So what is the hot topic among New Jersey politicians? Is it how to make the fundamental and painful decisions needed to completely reorient the state and its citizens to the new reality of less revenue? No. The big hubbub is whether or not to raise the income tax rate on those state residents earning over a million dollars a year. If this is done, the net gain to the state treasury would be about $637 million, according to the Business Week article. This comes out to less than 6% of the deficit and still leaves another $10 billion gap to close. This is what I call stupid math, everyone is up in arms about the tax on millionaires when in reality, it is a trivial part of the bigger problem. Its stupid to focus on this single issue vs. the much larger problem.

Rather than attack the bigger problem, the $10 billion, the state political class members are trying to find ways to leverage this so-called "millionaire's tax" in the November elections. Never mind that the state is about to go over a financial cliff, the only thing that the politicians can think about is how to leverage a relatively minor issue for their own good. The $10 billion deficit is not going away, it is only being ignored for the greater good of politicians' careers. Given that New Jersey has about 3.5 million households, the potential hit on average for each household AFTER taking into effect the millionaire's tax is still almost $2,900 per household. This $2,900 would be on top of the some of the very highest tax burdens in the country (see above list). If there is no tax increase on millionaires, the amount each household would have to pay is only $181 or 6% higher, i,e. it makes virtually no difference if the tax is passed or not relative to the deficit.

That is the reality of the situation and rather than attack that reality, the New Jersey politicians would rather divide the state into tribes, millionaires vs. non-millionaires, and exploit that division for their own good. They are somehow hoping that they would never have to present that household bill for $2,900 to their constituents, knowing that a reality like may actually end their political careers. Thus, not only did they mismanage the state into its dire economic straits, they still want to play their petty politics and protect themselves rather than fix the underlying, structural budget problems.

It is no different on the national level. Our total national debt level is getting very dangerous, to levels that are unsustainable, according to the Congressional Budget Office. Our deficit spending will not be overcome by a rebound in the economy or employment. The Obama administration is spending almost 70% more in expenses than it is collecting in revenue. No combination of rising employment and economic growth will add up to 70%. Already, just like New Jersey politicians, you hear Federal politicians talking about not wanting to do anything substantial, whether it is cutting the budget, passing immigration reform, getting out of Iraq, etc., since it might endanger their chances at re-election in November.

Much like New Jersey, the country as a whole will now drift in the sea of red ink and indecision in order to maintain politicians' careers. In the meantime, reality will get worse and worse as will the eventual pain of dealing with that worsening reality. Just ask the Greeks.

Oh, one last thing. To my friends and relatives and millionaires in New Jersey. Maybe you should follow the lead of your young college graduates, they seem to know that leaving the state is best for their lives. Especially if you are a millionaire, maybe moving to Florida, where we landed, where there is NO STATE INCOME TAX is a good decision. Do you really think that this argument of taxing the rich will end with this fiscal budget? I would expect it, the millionaire's tax, to go ever higher year over year, given the track record of New Jersey politicians. Best to get out now and save tens of thousands of dollars every year here in Florida (or any other state that has no state income tax). If enough New Jersey millionaires leave the state, that would certainly make the "millionaire's tax" a moot point in future budget discussions.

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