Mitchell: A tragic, continuing story of fiscal decay

Daniel J. Mitchell

When companies want to boost sales, they sometimes tinker with products and then advertise them as “new and improved.”

In the case of governments, though, I suspect “new” is not “improved.”

The British territory of Jersey, for in stance, has a very good tax system. It has a low-rate flat tax and it overtly brags about how its system is much better than the one imposed by London.

In the United States, by contrast, the state of New Jersey has a well-deserved reputation for bad fiscal policy. To be blunt, it’s not a good place to live and it’s even a bad place to die.

And it’s about to get worse. A column in the Wall Street Journal warns that New Jersey is poised to take a big step in the wrong direction. The authors Regina Egea and Stephen Eide start by observing that the state is already in bad shape.

“…painless solutions to New Jersey’s fiscal challenges don’t exist,” they write. “…a massive structural deficit lurks… New Jersey’s property taxes, already the highest in the nation, are being driven up further by the state’s pension burden and escalating health-care costs for government workers.”

In other words, interest groups (especially overpaid bureaucrats) control the political process and they are pressuring politicians to divert even more money from the state’s beleaguered private sector.

But, as the columnists write, “At a debate this week in Newark, the Democratic gubernatorial nominee, Phil Murphy, pledged to spend more on education and to ‘fully fund our pension obligations.’ … But just taxing more would risk making New Jersey’s fiscal woes even worse.”

The column warns that New Jersey may wind up repeating Connecticut’s mistakes. Going down that path, however, is a recipe for a loss of high-value taxpayers and businesses.

Last year, The New York Times published a remarkable article that offers a very tangible example of how the state’s budgetary status will further deteriorate if big tax hikes drive away more successful taxpayers.

The article discussed the impact to New Jersey’s state budget when hedge-fund billionaire David Tepper moved his personal and business domicile out of the state to take up residence in Florida – resulting in the loss of hundreds of millions of dollars in lost tax revenue.

By the way, Tepper isn’t alone. Billions of dollars of wealth have already left New Jersey because of bad tax policy. Yet politicians in Trenton blindly want to make the state even less attractive.

At the risk of asking an obvious question, how can they not realize that this will accelerate the migration of high-value taxpayers to states with better policy?

New Jersey isn’t alone in committing slow-motion suicide. I already mentioned Connecticut and you can add states such as California and Illinois to the list. According to the article, in New York, California, Connecticut, Maryland and New Jersey, the top 1 percent of residents pay a third or more of the total income tax

What’s remarkable is that these states are punishing the very taxpayers that are critical to state finances.

The federal government does the same thing, of course, but it has more leeway to impose bad policy because it’s more challenging to move out of the country than to move across state borders.

New Jersey, however, can’t set up guard towers and barbed wire fences at the border, so it will feel the effect of bad policy at a faster rate.

P.S. I used to think that Governor Christie might be the Ronald Reagan of New Jersey. I was naive. Yes, he did have some success in vetoing legislation that would have exacerbated fiscal problems in the Garden State, but he was unable to change the state’s bad fiscal trajectory.

P.P.S. Remarkably, New Jersey was like New Hampshire back in the 1960s, with no income tax and no sales tax. What a tragic story of fiscal decline!

Daniel J. Mitchell, chairman of the Center for Freedom and Prosperity, is on the Editorial Board of the Cayman Financial Review.

2
0

NO COMMENTS