Saturday, February 20, 2010
New Jersey: Taxed to Death? Or not taxed enough?
Are we really paying more taxes than we used to?
In my home state of New Jersey it has become conventional wisdom that we are grossly overtaxed - that tax cuts are the only cure for the slew of evils besetting us. After having watched my own property tax bills more than double since I moved to the state in 1997, it was a sentiment I found hard to gainsay. I did wonder though, if my taxes were so high, why there seemed to be no money available to pay for anything. Our schools and municipalities, after all, have been retrenching and cutting back on programs almost continuously for my entire 13 year tenure in the state, despite the vertiginous (some might say outrageous, or even confiscatory) local tax increases. I did some poking around on the intertubes and, much to my surprise, found that far from being more heavily taxed than in the past, overall tax burdens have gone down almost continuously since the mid 1960's.
The Tax Foundation, which describes itself like this
So why do we feel overtaxed now, if we didn't then?
It's all about where we pay those taxes. In 1980, the mean Federal tax rate was 15.31% while New Jersey's state/local tax bite was 10.1%. By 2007, the state/local tax rate had climbed to 11.9% - but during the same period the federal rate had fallen to 12.68%. Using (for simplicity's sake) the 2007 NJ median per capita income of $54,264 (per the Tax Foundation's tables), 1980 federal taxes would have been $8308 while state/local taxes would have been $5481. In 2007, federal taxes would have fallen by $1427 to $6881 while state and local taxes would have risen by $994 to $6475. The total tax bill then, for a median taxpayer in New Jersey, would have fallen from $13,789 to $13,356. Because there has been no change in the NJ marginal income tax rate for taxpayers earning less than $400,000 (at least since 2000, the earliest year I could find data for), the increase in NJ taxes is attributable almost entirely to property tax and therein lies the cause of taxpayer discontent. We feel more burdened NOT because we are paying more taxes, but because federal and state elected officials have been buying our votes for the last 30 years with tax decreases that local elected officials are stuck having to paper over with corresponding tax increases. We feel the bill now, as we did not in 1980, because instead of paying it with money we never had in hand (i.e. via payroll withholding), we now write the checks out every month as part of our mortgage or rent payments.
The problem for New Jersey gets worse. In the period between 1981 and 2005 (again, the only period for which I could find data), for each dollar we sent out of the state as federal taxes the amount coming back to New Jersey declined - from an awful 72 cents on the dollar to an abysmal, disastrous 61 cents. In 1981, using the hypothetical income numbers from the paragraph above, NJ would have gotten back $5982 per capita from the Feds. In 2005 we would have gotten only $4197 - and that $1800 shortfall had to be made up from state and local sources.
The history of continued taxing and spending shows fairly convincingly that New Jersey residents, despite saying they want lower taxes (as who doesn't), even more strongly want the things that their taxes buy and, at least up to now, have been willing to pay to get them. A litany of elected officials in Trenton, though, have been either too clueless to understand this or too cowardly to work it politically. Instead of making the case for finding better ways to pay for the things their constituents want and need, they put arbitrary caps on property tax levies. They base their caps on the CPI despite the undeniable fact that what government spends most of its money on does not track the CPI at all. The cost of employee health insurance, for example, has gone up by double-digit rates each year for the last decade while municipalities and school districts were stuck with 2.5-4% caps on the amount of money they could raise. The disconnect between state-mandated tax caps and market-mandated cost increases has squeezed local taxing authorities to the breaking point - program cuts, furloughs, police, fire and emergency services layoffs have become not only thinkable, but expected annual events. Like their equally cowardly brethren in Washington, Trenton has bought votes by pretending to be tough on budget issues while really just pushing the bills down to the local level. Mayors, Township Committees, Borough Councils, and School Boards have to deal with political fallout both from tax increases and program cuts and layoffs while Trentonians have positioned themselves to look like heroes ( in areas selected for maximum political benefit) by tossing fifty thousand here, a few hundred thousand there, to fill in the local budget gaps they created in the first place.
What to do, what to DO?
New Jersey has only a couple of options, and what Governor Chris Christie is doing now (making draconian cutbacks in state aid to municipalities and school districts) shouldn't even be on the table. As outlined above, our tax burden is no heavier, and in fact is somewhat lighter, than it's been in the past. Cutting services is the answer only to a question no one should be asking.
We need, first of all, to raise taxes, not decrease them. This should be done at the state level, offsetting some significant portion of the (moderately regressive) property tax and the (deeply regressive) sales tax with increases in the (progressive) state income tax. Income tax marginal rates should go up a bit, too - particularly in the over $250,000 income range. (There's no such tax bracket today - a huge gap between the $75,000 and $400,000 brackets that should be filled). This, of course, would take courage from Trenton, courage that appears to be lacking in either party.
We need to hold our Congressional delegation's feet to the fire: New Jersey has senior, quite influential members in both houses of Congress, some in the Democratic leadership (Senator Menendez and Representatives Payne, Pascrell, Andrews, and Pallone come to mind), who just aren't doing enough to bring our tax dollars back to New Jersey. We need to make sure that the Bush tax cuts, due to expire soon, are allowed to do just that - and to call bullshit on any candidate, incumbent or newcomer, who calls that expiration a tax increase.
Finally, we New Jersey taxpayers need to step back and look at the whole tax picture instead of focusing solely on the rise in property taxes, because we're really not doing so badly on that front after all.
In my home state of New Jersey it has become conventional wisdom that we are grossly overtaxed - that tax cuts are the only cure for the slew of evils besetting us. After having watched my own property tax bills more than double since I moved to the state in 1997, it was a sentiment I found hard to gainsay. I did wonder though, if my taxes were so high, why there seemed to be no money available to pay for anything. Our schools and municipalities, after all, have been retrenching and cutting back on programs almost continuously for my entire 13 year tenure in the state, despite the vertiginous (some might say outrageous, or even confiscatory) local tax increases. I did some poking around on the intertubes and, much to my surprise, found that far from being more heavily taxed than in the past, overall tax burdens have gone down almost continuously since the mid 1960's.
The Tax Foundation, which describes itself like this
The mission of the Tax Foundation is to educate taxpayers about sound tax policy and the size of the tax burden borne by Americans at all levels of government. From its founding in 1937, the Tax Foundation has been grounded in the belief that the dissemination of basic information about government finance is the foundation of sound policy in a free society.has a vast amount of historical tax data available on its website. In going through the data, I found that New Jersey residents' per capita tax burden (Federal, state, and local taxes taken as a whole) had actually declined by 3.1% between 1980 and 2007. The Tax Foundation's handy rubric "Tax Freedom Day" (the notional date we finish paying our taxes and start keeping our income for ourselves) was May 1 in 1980. In 2009 it was two days earlier. In 1998, my first full year in New Jersey, Tax Freedom Day was May 14. In other words, overall tax bills have gone down quite significantly since 1997 and even since 1980. The last time Tax Freedom Day in New Jersey was as early as it was last year, on April 29, was during the Carter administration.
So why do we feel overtaxed now, if we didn't then?
It's all about where we pay those taxes. In 1980, the mean Federal tax rate was 15.31% while New Jersey's state/local tax bite was 10.1%. By 2007, the state/local tax rate had climbed to 11.9% - but during the same period the federal rate had fallen to 12.68%. Using (for simplicity's sake) the 2007 NJ median per capita income of $54,264 (per the Tax Foundation's tables), 1980 federal taxes would have been $8308 while state/local taxes would have been $5481. In 2007, federal taxes would have fallen by $1427 to $6881 while state and local taxes would have risen by $994 to $6475. The total tax bill then, for a median taxpayer in New Jersey, would have fallen from $13,789 to $13,356. Because there has been no change in the NJ marginal income tax rate for taxpayers earning less than $400,000 (at least since 2000, the earliest year I could find data for), the increase in NJ taxes is attributable almost entirely to property tax and therein lies the cause of taxpayer discontent. We feel more burdened NOT because we are paying more taxes, but because federal and state elected officials have been buying our votes for the last 30 years with tax decreases that local elected officials are stuck having to paper over with corresponding tax increases. We feel the bill now, as we did not in 1980, because instead of paying it with money we never had in hand (i.e. via payroll withholding), we now write the checks out every month as part of our mortgage or rent payments.
The problem for New Jersey gets worse. In the period between 1981 and 2005 (again, the only period for which I could find data), for each dollar we sent out of the state as federal taxes the amount coming back to New Jersey declined - from an awful 72 cents on the dollar to an abysmal, disastrous 61 cents. In 1981, using the hypothetical income numbers from the paragraph above, NJ would have gotten back $5982 per capita from the Feds. In 2005 we would have gotten only $4197 - and that $1800 shortfall had to be made up from state and local sources.
The history of continued taxing and spending shows fairly convincingly that New Jersey residents, despite saying they want lower taxes (as who doesn't), even more strongly want the things that their taxes buy and, at least up to now, have been willing to pay to get them. A litany of elected officials in Trenton, though, have been either too clueless to understand this or too cowardly to work it politically. Instead of making the case for finding better ways to pay for the things their constituents want and need, they put arbitrary caps on property tax levies. They base their caps on the CPI despite the undeniable fact that what government spends most of its money on does not track the CPI at all. The cost of employee health insurance, for example, has gone up by double-digit rates each year for the last decade while municipalities and school districts were stuck with 2.5-4% caps on the amount of money they could raise. The disconnect between state-mandated tax caps and market-mandated cost increases has squeezed local taxing authorities to the breaking point - program cuts, furloughs, police, fire and emergency services layoffs have become not only thinkable, but expected annual events. Like their equally cowardly brethren in Washington, Trenton has bought votes by pretending to be tough on budget issues while really just pushing the bills down to the local level. Mayors, Township Committees, Borough Councils, and School Boards have to deal with political fallout both from tax increases and program cuts and layoffs while Trentonians have positioned themselves to look like heroes ( in areas selected for maximum political benefit) by tossing fifty thousand here, a few hundred thousand there, to fill in the local budget gaps they created in the first place.
What to do, what to DO?
New Jersey has only a couple of options, and what Governor Chris Christie is doing now (making draconian cutbacks in state aid to municipalities and school districts) shouldn't even be on the table. As outlined above, our tax burden is no heavier, and in fact is somewhat lighter, than it's been in the past. Cutting services is the answer only to a question no one should be asking.
We need, first of all, to raise taxes, not decrease them. This should be done at the state level, offsetting some significant portion of the (moderately regressive) property tax and the (deeply regressive) sales tax with increases in the (progressive) state income tax. Income tax marginal rates should go up a bit, too - particularly in the over $250,000 income range. (There's no such tax bracket today - a huge gap between the $75,000 and $400,000 brackets that should be filled). This, of course, would take courage from Trenton, courage that appears to be lacking in either party.
We need to hold our Congressional delegation's feet to the fire: New Jersey has senior, quite influential members in both houses of Congress, some in the Democratic leadership (Senator Menendez and Representatives Payne, Pascrell, Andrews, and Pallone come to mind), who just aren't doing enough to bring our tax dollars back to New Jersey. We need to make sure that the Bush tax cuts, due to expire soon, are allowed to do just that - and to call bullshit on any candidate, incumbent or newcomer, who calls that expiration a tax increase.
Finally, we New Jersey taxpayers need to step back and look at the whole tax picture instead of focusing solely on the rise in property taxes, because we're really not doing so badly on that front after all.
