Tag: taxes

Tax reform, what tax reform?

I offer this commentary from New Jersey Policy Perspective, which arrived via e-mail today, in its entirety and unedited because it is worth reading. I really have little to add.

Whatever it was, it wasn’t tax reform

Maybe the best way to look at the “tax relief” package recently adopted by the Legislature is as the last act of the 2005 campaign, rather than the solution for New Jersey’s over-reliance on local property taxes to pay for government services and educating children.

Such a context makes it a bit easier to understand, and to accept on its own terms while recognizing that this is far from the reform New Jersey needs.

Candidate Jon Corzine ran for Governor with a promise to reduce property taxes, in response to his opponent’s having put forward a plan. In his first year in office, Governor Corzine made it clear that more had to be done to get the state’s finances in order before he could deliver on property taxes. In year two, he and the Legislature will be able to tell most New Jersey households that 20 percent will be knocked off their property taxes. Basing the amount of relief on income makes sense, and for most people we’re talking about a rather meaningful amount of money, at least for as long as the funding source holds up.

But now it’s time to get serious.

The special legislative session that produced 98 recommendations and laid the groundwork for the 20 percent reduction covered a lot of ground. There were flashes of vision and courage when it came to confronting the problems New Jersey inherently perpetuates by dividing itself into so many municipalities and school districts-an 18th century system ill-suited to today’s needs. Unfortunately, some of the boldest proposals (like a pilot program creating a countywide school district) wound up on the cutting room floor in the scramble to find enough votes for the tax relief.

What never seemed to make it into the mix-and needs to be there-is a long overdue, comprehensive look at New Jersey’s tax system. Only when that takes place will we find the way out of highest-in-the-nation property taxes. Often due to political concerns based on perception, not reality, and enflamed by misunderstandings and misrepresentations, key elements necessary for solving New Jersey’s tax mess are not being considered. The state income tax is a good example.

Much has been said about the top rate of New Jersey’s income tax being among the highest in the nation. But rarely is it pointed out that less than one percent of households make enough money to have to pay that rate. In fact, most in New Jersey don’t even pay the rate just below the top rate. Sort all of this out and you find that most New Jerseyans pay lower income tax than if they lived in New York State and much, much lower than if they lived in New York City. Most in New Jersey also pay less than if they lived in Pennsylvania.

The point here isn’t that any taxes in New Jersey are too low. It is, rather, to show there is much to be gained by considering the entire New Jersey tax system and looking for ways to put it in better balance. The income tax is much more closely tied than the property tax to one’s ability to pay. Your income goes down, so does your income tax, but that’s not true with property taxes. The value of your house can rise while income stays the same or falls, and you get a bigger tax bill though you are in no way better able to pay it.

During the debate in Trenton, some folks contended that it makes no sense to lower one tax by raising another. What actually makes no sense is that statement. Raising a fair tax to lower an unfair tax is a very good idea. If Trenton did nothing else that would be progress.

When we get beyond slogans and sound bites, New Jersey is left with this reality: we collect more from local property taxes than from the state sales and income taxes combined. It’s also true that the lower your income is in New Jersey the higher percentage of it you pay in the form of sales, income and property taxes combined. Real reform of the tax system would put all of this on the table. And it would also accept the fact that as bad as New Jersey’s tax system is (and it is) it is really a symptom of the larger problem: 566 municipalities and 613 school districts-an archaic, unsustainable structure more reminiscent of the Ottoman Empire than a 21st century state.

Real reform means looking not just at how much New Jersey spends, but where we spend it and who we call on to pay it. An honest assessment of tax burdens that squarely confronts who pays how much, and in which taxes, would point the way out of the morass. It would recognize the value of raising and spending more of our resources at the state and even county level and less locally. It’s the sort of thing that a tax convention made up of citizens would have no trouble contemplating but which elected politicians keep avoiding.

Whether you want to spend half as much as the state spends now, or twice as much, New Jersey needs a fair, adequate way to raise the money. We don’t have it now and we aren’t much closer to it than we were a month ago.

South Brunswick Post, The Cranbury Press
The Blog of South Brunswick

Email me at grassroots at comcast dot net.

Taxing questions in Monroe

A group of homeowners is suing Monroe because it believes the township’s assessment ratio — the number used to translate today’s housing prices into assessments based on decade-old values — is out of whatck.

I don’t want to get into the specifics of their complaint, which includes questions about how the ratio was calculated and some accusations of improprieties. But the assessment problem does point out a more general problem with the way we pay for government in New Jersey.

New Jersey property owners, as everyone knows by now, pay the highest property taxes in the nation and use the property tax to cover nearly three quarters of the cost of government.

Towns, schools and counties set tax rates based on the value of property within their borders, the values being based on market prices. They are set infrequently — generally because a full revaluation of property involves inspecting every house, store and warehouse and is quite costly — meaning that most assessments are out of date. To address this issue when new residential and commercial properties are built, towns attempt to go back in time through an assessment ratio.

In the case of Monroe, new residents in several communities are saying that they are being assessed too high when compared to older homes, which leaves them paying more than their share of the cost of local government.

A full revaluation would fix this — though not fix what maybe a historical problem. And it won’t prevent this problem from popping up in the future.

The best way to address this is to lessen the property tax burden across the board — by shifting the cost of New Jersey government (meaning local, school and county) off property taxes and onto income taxes, which are calculated annually.

South Brunswick Post, The Cranbury Press
The Blog of South Brunswick

Email me at grassroots at comcast dot net.

Let’s call the whole thing off

I am of two minds on the state Senate’s failure to pass the 20 percent tax credit.

A graduated tax credit that could save the average taxpayer about $1,200 over the course of the year seemed to be better than nothing, but approving the credit might just doom further efforts to achieve real reform.

The reality is that the tax-credit plan was a sham, nothing more than a way to salvage the complete failure of the state’s tax reform efforts, to make it appear as if the state Legislature accomplished something even as all of the evidence proved the contrary.

The plan — a 20 percent property tax credit for those who earn up to $100,000, 15 percent for those who earn between $100,000 and $150,000 and 10 percent for those who earn between $150,000 and $250,000 — would replace the current property tax rebate propbram for most residents.

The plan also includes a questionable cap on property tax levies that, even with the massive loopholes attached to the bill, will do little to control taxes while tying the hands of local goverment and school boards — the entities we rely on most on a day-to-day basis.

Under the plan, the state would give money to the municipality, which would then apply the credits to individual tax bills reducing the required payments. Tenants and seniors would continue to receive rebate checks.

The plan sounds good on the surface, but has several serious shortcomings: 1) It may not be sustainable beyond 2008; 2) it does not address the way we raise revenue to pay for government; 3) or offer require any government streamlining.

This is the point that state Sens. John Adler and Nia Gill — two of the four Democrats objecting to the bill — were trying to make:

Sens. John Adler, D-Camden, and Nia Gill, D-Essex, questioned how the state would pay for the $2 billion credit program in the long run. A financial quirk gives the state government extra money to use for this year only. Adler and Gill both said the credit program, which will take the bite out of tax bills but not address root causes of high property taxes, falls short of true reform.

“If we were selling this tax package as a product, we would be in violation of the Consumer Fraud Act,” Gill said. She later added, “In plain language: We do not have the money to pay for this.”

Adler said the caps had been “gutted” and called for lawmakers to go back to the property tax reform drawing board, rather than pass watered-down bills and declare them “good enough.”

“We should step back, take a breath, ask for a do-over,” Adler said.

Taking a step back makes sense, as does the suggestion that Assemblyman Bill Baroni and state Sen. Peter Inverso — Republicans who represent Cranbury, Jamesburg, South Brunswick and Monroe in the Legislature — made to us last week:

Mr. Baroni said the state had its chance to reform taxes, and failed. He said that he would like to see a constitutional convention where citizens are elected as delegates and propose changes in the way the state taxes its citizens. The changes would then go to voters in a statewide referendum.

“The Legislature has had its chance,” Mr. Baroni said. “Now let’s let the people of ‘New Jersey do it.”

Sen. Inverso agreed. He said the Legislature has failed to make significant property tax reform, and he will continue to push for a constitutional convention.

“You have seen what happened to these proposals that have come out of the Special Session Committees,” Sen. Inverso said. “They’ve been diluted and to quote my dear friend (state Sen.) Barbara Buono, they’ve been emasculated. It shows that this process is not one where taxpayers, who don’t have a special interest presence each and everyday, are the ones that will benefit from it.”

I’ve written about this before, but it bears repeating: The four-month review of state and local government, their budgets and tax structures was a bold undertaking, but given the swirl of interests in Trenton and their fear of change, it was doomed to failure.

In the nearly three months since the release of the joint committees’ findings and recommendations, we have learned that the state Legislature cannot be trusted to overhaul the system.

It is time to let taxpayers have a whack at it.

South Brunswick Post, The Cranbury Press
The Blog of South Brunswick

Email me at grassroots at comcast dot net.

Two is one too many

Leave it to a bunch of politicians to find a way to water down a reform so that it doesn’t apply to them, only to those who will eventually replace them. That’s what has happened to a proposed ban on dual office-holding, which will grandfather in current members of the state Legislature and only apply to new members or those who seek a different office (an Assembly member running for Senate, for instance).

The grandfather clause may have been necessary to garner enough votes (doubtful, but for the sake of argument we’ll allow this to go uncontested), but it certainly was not the right way to go about cleaning up government.

State Sen. Tom Kean Jr. (R-Westfield) wants to change that. Kean, who lost a bruising U.S. Senate race to Robert Menendez, told the Jersey City Reporter that dual office-holding is an “‘absolute conflict of obligations’ that gives certain politicians too much power.”

There are 18 members of the state Legislature who currently hold another elected position — or 15 percent. This does not include the handful of others who serve as school superintendents and in other similar positions. This raises questions about whom they serve first — exactly the point that Kean is trying to make.

David Rebovich, managing director of the Rider University Institute for New Jersey Politics, describes Kean’s arguments this eay on PoliticsNJ:

Kean is interested in consistency, claiming that if the practice is wrong as most legislators apparently believe — after all, they do want to ban it for others — then there is no justification for grandfathering people in except political expediency and favoritism.

Beyond consistency, Kean makes several other arguments for getting rid of the practice. He believes dual office-holding leads to higher property taxes. This is a tricky point. Local officials who are also legislators will fight for more state aid for their communities and school districts. But presumably they will also tolerate more bureaucracy and public employees at the local level because they are part of the establishment there. Kean also notes that dual office-holding concentrates political power among fewer politicians which gives them a large power base from which they can thwart discussions for reform and changes in various policies.

In addition, Kean claims that holding a local and a state office creates conflicts of interest. For example, state legislators may not support policies that are good for the entire state, but not for the local political establishment, because such support may jeopardize reelection to their local office. As such, the system of checks and balances between levels of government can be compromised by dual office-holders. Will mayors who are also legislators support plans for municipal consolidation or merger
that may save taxpayers some money but cost themselves and their political allies their local government posts? Will they empower a state comptroller or other officials to flesh out wasteful and perhaps illegal spending in municipal governments or schools, or will they try to protect these jurisdictions from such scrutiny?

On these terms, the advocacy role played by legislators who are also local officials may undermine the ability of state government to exercise its constitutional authority over substate jurisdictions and to root out inefficient and ineffective policies and programs. Lastly, Kean complains that dual office-holding limits the number of people who can serve in government and its representative quality by making it harder for women and minorities too gain office. More people and different types of people in government typically mean more views expressed and perhaps a livelier, more productive dialogue about policy issues.

I’ve been rather critical of young Kean, especially for the manner in which he attacked Menendez during the campaign, helping to drag an already ugly race deeper into the gutter. But his proposal — that dual office-holders be forced to relinquish one of their elected posts in January 2008 — makes sense. I would strengthen it a bit further, though, disqualifying anyone who holds a management-level public job (school superintendent or assistant superintendent, township manager, sewer authority director, etc.) from holding a legislative office (and a county office in the county in which they work).

It’s time to make them choose.

South Brunswick Post, The Cranbury Press
The Blog of South Brunswick

Email me at grassroots at comcast dot net.