Tax Reform

State of the State: New Jersey

New Jersey Governor Chris Christie last week delivered his sixth annual State of the State address in Trenton. He began with a grim reminder of the severe problems that voters in 2009 first elected him to solve. “We were one of the most heavily taxed states in the nation,” the governor noted. “Jobs and businesses were fleeing.”

Christie boasted that, on his watch, New Jersey has gained 224,000 new jobs. Over the last year, he said, the Garden State’s recovery has only gone “from strong to stronger.”

Unfortunately, the most recent edition of Rich States, Poor States ranks New Jersey 46th in terms of economic outlook, while the state’s economic performance ranks a dismal 48th. Residents, meanwhile, are voting with their feet: according to United Van Lines, New Jersey’s rate of outbound migration is the nation’s highest.

A significant driver of this migration is the Garden State’s crushing tax burden. While Christie has, to his credit, generally held the line on taxes, New Jersey residents are still waiting for meaningful relief. Both income and sales taxes remain high.

In his State of the State address, Christie touted a 2 percent property tax cap that he signed into law. Since then, property taxes statewide have risen 1.9 percent a year on average. While that might seem reasonable, New Jersey’s property taxes were the very highest in the nation when the 2 percent cap was enacted. Almost six years later, unfortunately, they still are.

On Tuesday, Christie urged legislators to finally abolish New Jersey’s estate tax – a bold move that would enhance the state’s competitiveness. He noted that, while 14 states have estate taxes and six have inheritance taxes, New Jersey is one of just two states that have both.

Without real fiscal discipline, it is difficult to cut taxes. Christie’s address touted his six consecutive balanced budgets. He further noted that discretionary spending for 2016 is below 2008 levels by $2.8 billion. However, it is non-discretionary spending where the bulk of New Jersey’s problems reside. Few states have pension systems in more dire shape. When the State Budget Solutions fair-market valuation is applied, New Jersey’s unfunded obligations amount to a staggering $200 billion – $22,491 for every man, woman and child in the Garden State.

Just one day before the governor’s address, legislators voted in favor of a constitutional amendment that would require full payments into the state’s pension fund. Calling this “a road to ruin,” Christie warned that, absent cost-saving reforms, such a measure would leave almost nothing for hospitals, schools or a variety of critical services upon which state residents have come to rely.

This year’s State of the State address revealed a wide gulf between the governor and the legislature. New Jersey’s financial problems, meanwhile, are not going away. Both sides will have to consider bold measures now, on a variety of fronts, if New Jersey is to avoid long-term insolvency.

This is an entry in the ALEC Center for State Fiscal Reform series, “State of the States 2016,” which will perform analysis of tax and budget issues raised in every state of the state address delivered by America’s governors. Check back frequently over the coming weeks to see the results for your state.

In Depth: Tax Reform

Mainstream economists, small business owners and taxpayers across the country understand that growth-oriented reforms mean increased opportunity for all. As demonstrated by the annual Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index, sound tax and fiscal policies are critical to economic health, allowing businesses and households to flourish. A…

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