Discussions are underway concerning the viability of a FY 2015 budget year tax cut and these discussions have changed little in substance since earlier this year. The Governor wants it done though, once again, Democratic leaders are skeptical. But what this State needs more than anything else is a tax cut.
What we need to get our economy going is a strong housing market. A strong housing market increases sale prices, cash flow and revs up the economy. A stronger economy helps to generate jobs. The lynch pin is property taxes since they greatly influence the housing.
What the Governor proposed for the 2014 budget was an income tax credit of up to a $10,000 limit based on 10% of your property taxes paid, phased in over 4 years. The Office of Legislative services in 2013 found that a 10% income tax cut phased in over 3 years would cost $168 million in the first year ramping up to $1.3 billion per year.
The exact offer for the 2015 budget is to be determined but a 10% cut seems like the target.
New Jersey residents pay municipal, school, county, sales and income taxes. Seven don’t have income taxes and five don’t collect sales tax. Local taxes (municipal, local and county) account for 57% New Jersey’s aggregated consumer annual tax bill. The State of New Jersey takes 43%, which is good news, since on average States that collect an income tax take 60%. In fact, we are the second lowest state in this metric out of all states that collect an income tax.
What that tells us is that our local taxes are out of whack. Not that we don’t need to lower state taxes, Save Jerseyans, but local taxes exact a much bigger impact on our local economies. So an income tax tied to lower property taxes makes a lot of sense.
Governor Christie has said we should be looking at not only the revenue side of the equation but also the expense side, and I couldn’t agree more. The Governor has the opportunity with the 2015 budget to cut even more expenses from the State budget. Cutting expenses is more predictable going into successive budget years.
I am assuming that New Jersey does not typically spend 100% of its entire budget each year so there should be an opportunity to right size those line items in 2015. The Governor should also remove any one-shot items. The right balance of expense cuts and revenue enhancements can make a tax cut work if, of course, Democrats are willing to break form and give it a try.