This is a third in a continuing series of posts where we discuss why it is often a stupid idea to unfairly overtax the rich. Standard disclaimers: first, my family is no where close to being considered "rich." We pay our Federal income taxes at the 15% tax bracket level. We live in a typical middle class, 2,000 square foot suburban home. I drive a seven year old vehicle and my wife drives a five year old vehicle. Thus, we do not have a direct stake in how much the rich are taxed.
Second disclaimer: the words "overtaxing" and "rich" are very subjective terms and concepts. Thus, the purpose of these posts is not to convince anyone what rich or unfair or overtaxing should be but to illustrate what can happen when taxes are increased on those high earners in our society. Wanting to tax the rich more is everyone's right but the reality of what happens when taxes are raised is what everyone should be aware of.
Today's post is centered around my old home state of New Jersey. Visiting the state this week caused me to see a number of billboards that were sponsored by a group sarcastically calling itself "Millionaires For Christie." Chris Christie is the current governor of New Jersey. The billboards and associated website were trying to raise the issue that as a result of Christie refusing to increase the state income tax on New Jersey millionaires, others in the state were suffering.
The associated website goes through some of the budget cuts that were made under Christie's watch, all of which seemed to be associated with education programs. This turned out not to be surprise once you paged down to the bottom of the website's page and saw that the primary New Jersey teachers' union was operating the site. The Governor and the union leadership have had a number of public confrontations since the governor was elected. Thus, I started to understand where the sarcasm and Millionaires for Christie effort was coming from, his main political opponent.
Before going through some of the items on the website, let's look at some independent sources of analysis and data to understand where New Jersey is currently sitting from an economic perspective:
- When Christie came into office, New Jersey faced a $10.5 billion budget shortfall, according to http://www.nj.com/ in a July 7, 2010 article.
- According to the Center On Budget and Policy Priorities, an organization that appears to be an expert on state government budgets and economics, the state will again face a budget deficit in excess of $10 billion in fiscal year 2012.
- This 2012 fiscal shortfall places New Jersey's deficit as the third worst state budget from a total dollar deficit ($10.5 billion) and the second worst state from a percentage basis (37.4%).
- A November, 2010 article from Kiplinger ranked New Jersey as the third worst state to retire in from a taxation perspective.
- A recent Forbes article placed New Jersey as the fifth most taxed state in the union.
- A detailed state-by-state analysis by the Tax Foundation in 2008 found that New Jersey had the worst state and local tax burden in the country, 11.8%. Knowing what I know about New Jersey, it is doubtful that this position has changed radically over the past few years.
- A recent article from Reason magazine quoted an expert source which calculated that the New Jersey public employee pension fund would run out of money in about seven years, requiring all of the pension outlays to then be paid out of current year state tax dollars.
Thus, it really cannot be argued that New Jersey is in bad fiscal shape even though it is one of the highest taxing state governments by anyone's measure or criteria.
Now, back to the Millionaires For Christie effort. According to their website, if Christie had approved an additional tax for millionaires in the state, the state government would have annually received an additional $637 million. However, there are a few problems with this assertion:
- Even if the state received the additional $637 million, according to independent budget estimates from neutral parties, this would leave the state short about $9.9 billion or 94% of its needed revenue. Isn't the bigger problem still on the table even if the additional money is received? Shouldn't that be the focus, how to wipe out the inherent, structural fiscal problem that results in billions and billions of budget shortfall every year rather than only 6% of the shortfall?
- Even if the state received the additional $637 million in the first year, if no action was taken to correct the underlying cost structure problem, what happens when the "Maryland effect" kicks in a few years later.
You recall in a previous post in this series we documented what happened when the state of Maryland instituted a millionaire's tax. The number of millionaires filing state income taxes dropped by 30% very quickly and the state expectation of receiving an additional $106 million turned into a $267 million deficit relative to tax receipts from millionaire's. If that was to happen in New Jersey, which is more than likely, then the rest of New Jersey taxpayers, the non-millionaires, would end up paying the freight since the state government and political class never fixed the underlying cost structure.
- The website lists how much money was cut from various programs. However, it does not say what percentage of the total program costs that represents. For example, if a program costs $2m to operate and $1 million is cut, that is significant. However, if the program costs $100 million to run and $1 million is cut, that is not significant.
Thus, by not showing both the absolute and the relative size of the cuts, the website leaves the impression that everything is a crisis where that may not be the case to suspicious people like myself. If all of these cuts are relatively small on a percentage basis, their cause will lose my sympathies, given the overall disaster that the total state budget is in.
- Christie's cuts in trying to get spending in line with revenue fell heavily on everyone and every program in the state including education. But since education is one of the biggest budget lines, there was no way that education funding could not be affected.
That is a fact that seems to be lost on the Millionaires for Christie effort and backers. All of the examples they cite are relative to education and the interests of the teachers' union. They provide no constructive input on how else to get state budget costs under control, it is nothing more than a rant about their interests getting cut.
Given the overwhelming evidence that New Jersey is on the edge of a fiscal collapse, it would have been more constructive and credible to come to the table with a plan that could solve the education problem and the budget problem as opposed to ranting about "Christie's Cuts."
- The group and website act as if Christie is personally holding back funds and is just a bastard. The fact of the numbers is that the state does not have the revenue, Christie cut in order to fulfill the state constitution requirement of a balanced budget. To infer these are
Christie's personal cuts is a juvenile way to approach a problem and reality.
Should millionaires be taxed more in New Jersey? I do not know, that is a subjective opinion. That is up to the residents of New Jersey to determine. But understand that if they do raise the taxes on millionaires without fixing the underlying cost structure, in a few years they are likely to have much less revenue from millionaires, ever higher state government costs, and the need to raise taxes on everyone, not just millionaires. That is the likely long term reality. The root cause of the problem is out of control state spending, not Christie personally making budget cuts.
And higher taxes on everyone to meet today's out of control state government expenses will eventually bump into the reality of raising taxes still more in about seven years to pay for state pension shortfalls. All of these events will eventually cement New Jersey's reputation as the most taxed state in the union.
And that is why I am no longer a New Jersey resident. I grew up in New Jersey and after graduating from an out-of-state college, returned to New Jersey. My wife also grew up in New Jersey and together we worked almost a combined fifty years in New Jersey jobs. I started a successful small business in New Jersey. We have a ton of friends and family in New Jersey. We enjoyed the Jersey shore, the Jersey mountains, and just about every other aspect of life in New Jersey.
However, we left in 2005 and moved to Florida for the simple reason of a New Jersey political class that did not have any fiscal sanity or clue, both Democrats and Republicans. What have we gained by moving to Florida:
- In 2005, the year we left New Jersey, we paid over $12,000 a year in property taxes. We did not have any municipal services and were served by the state police and a volunteer fire company. I cannot imagine how much our property taxes would be today, six years later, in that typical suburban New Jersey house.
- In 2011, we will pay under $4,000 a year in Florida property taxes. Thus, at a bare minimum, we are saving $8,000 a year vs. New Jersey or about $670 a month, in property taxes.
- Our Florida property taxes have gone down every year since we moved here and they are capped at no more than a 3% increase a year.
- We pay absolutely no state income taxes in Florida.
- Florida was not listed in the Reason magazine as having a looming state pension problem like New Jersey has.
- We still see a lot of New Jersey friends and family as the escape New Jersey winters for the warmth of Florida.
- Some New Jersey teachers might claim that Florida schools are not as good as New Jersey schools and that is why taxes are so much higher in New Jersey, the taxes pay for a higher quality education. Why that may have historically been the case, Florida has been working hard over the past decade to improve their schools' quality. In fact, according to the latest Newsweek annual analysis of the nation's high schools, eighteen of the top 100 schools are currently in Florida, only one is in New Jersey, deflating the whole argument that New Jersey pays more taxes for a better level of education.
Thus, there were plenty of reasons for us to stay in New Jersey but the state government, the state political class, and the state tax burden made that impossible. I believe we were net contributors to the state of New Jersey. We never collected unemployment, we never went on welfare, we paid our taxes on time, we volunteered in our community, we used our disposable income to frequent New Jersey restaurants, movie theaters, and other businesses.
However, I would bet that we are not alone in the decision we made to leave, that individuals, families and businesses have reached the same conclusion or will soon reach that same conclusion. Raising taxes on millionaires in New Jersey is certainly a budget option. So is the nasty downstream implications if the state's political class does not fix the underlying root causes of excessive spending since those root causes will not go away but the millionaires might.
Our book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at http://www.loathemygovernment.com/. It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedom for both yourselves and others everyday.
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http://www.loathemygovernment.com/
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http://www.flipcongress2010.com/
http://www.reason.com/
http://www.repealamendment.com/
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