New Jersey has a major crisis on its hands. Its political leaders are refusing to address the elephant in the room that is crippling blue-collar families by hindering job creation, wage growth, and quality of life.
That elephant is the state’s reckless tax-and-spend problems, and it’s a massive one. Past studies have shown that the Garden State has the worst finances and business climate in the nation. This year, New Jersey ranked as the second most moved-from state in the country, but in the five preceding years, we took the top spot. As a result, our tax revenue is still 6 percent lower than it was before the financial crisis of 2007. Although our political leaders have refused to do anything to rectify the situation, Congress recently took huge strides to provide the relief we desperately need.
Congress’ sweeping tax relief bill, which is expected to raise the incomes of middle-income families in New Jersey by over 15-percent more than the national average, is the best thing to happen to the Garden State in decades. Our working families benefit from both the lower personal tax rates and the businesses that are passing the income gains they have realized from the legislation en masse.
For example, shortly after I sent a letter to PSE&G urging the company to lower New Jersey residents' utility rates, they slashed them by $114 million on an annual basis – marking yet another tax cut for nearly every resident of the state. Congress' efforts have also created a laundry list of statewide pay increases and bonuses for those that have needed it the most.
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While the legislation’s reduction in taxes for working families and businesses was sorely needed and a critical aspect of reform, the bill also enacted a new $10,000 cap on the federal deduction for state, local, and property taxes. This cap, which is very similar to the $10,000 property tax deduction cap we have on the state level, has pressured Trenton to follow suit by enacting long-overdue tax reductions that the working class has wanted for years.
In the words of Senate President Steve Sweeney, Congress’ move initially forced New Jersey’s Democrats to hit the “pause button” on their latest high-tax agenda because they can no longer charge all the costs onto Washington’s credit card. Unfortunately, Rep. Josh Gottheimer, D-5, has now given them the idea of creating a workaround that is gaining traction in in the State House.
Instead of winding down the anti-growth and high-tax policies that have thrashed the working class and inadvertently lowered our state's tax revenue, Democrats are now attempting to create municipal charitable trusts that residents can “donate” their high state tax liabilities to. This way, they can claim the charitable deduction and receive matching federal write-offs, thus preventing the need for New Jersey politicians to reduce state taxes. This regressive tax scheme has already passed the Democrat-controlled Senate and will now move into consideration in the General Assembly.
It is interesting how the congressman who voted against the tax relief bill in part because of his belief that it will raise federal deficits has now generated a state movement to loot even more money from the federal government. The same congressman that campaigned on lowering tax loopholes is currently working to create one that will preserve his high-tax agenda.
In an editorial recently published in The Record, Gottheimer defended his disastrous idea by asserting that this is the way for New Jersey to fight back against “Moocher States” like Florida, which “pilfered our pockets for $600 billion to pay for tax relief for their states.” But who is the real “moocher” here, politicians from the Garden State or the Sunshine State?
Florida boasts no income tax; New Jersey has one of the highest in the nation and has been dependent on federal taxpayers’ financing of its high state taxes through deductions. The federal government did not “pilfer” money from high-tax states like ours by capping the deduction – New Jersey Democrats were pilfering cash from low-tax states to avoid getting their finances under control.
Our high taxes hurts, not helps, us from a revenue standpoint. Every year, working individuals and corporations flee the Garden State in droves and move to more economic-friendly states like Florida. This movement lowers wage and job growth and restricts us from recovering economically from the Great Recession. It won’t stop unless we enact real state reforms.
Not only is Gottheimer’s plan illogical from an economic standpoint, but it is also unlikely to pass legal muster. Naturally, IRS law requires charitable intent for charitable deductibility. Mandating that New Jersey residents park their state and local taxes in a so-called charitable fund is the furthest thing from philanthropic intent and will likely be tossed out soon after its enactment.
Gottheimer often cites the fact that “more than 30 states” have provide charitable credits for decades, but these cases are far from similar. Everyone should be able to comprehend how states offering charitable credits to those helping underprivileged students attend private schools is radically different than a state providing charitable credits to everyone that pays state and local taxes. This idea does not even pass the laugh test.
Instead of avoiding reform by passing Gottheimer's big government, corner-cutting measure, Trenton must reverse this trend of financial irresponsibility by getting to the heart of our taxing-and-spending problem. That is what state legislatures discussed doing before Gottheimer’s plan was thrown into the mix and those talks should continue today.
Congress has led the way by passing a pro-growth job creation bill that has raised wages, increased jobs, and reduced the tax burden of the Garden State's workers, families, and corporations. It's time for New Jersey's political leaders to finish the job and make us an even better place to live, work, and do business.
Steve Lonegan is the former mayor of Bogota, NJ and a current congressional candidate for New Jersey's Fifth Congressional District
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