Taxable Talk

New Jersey legislators and Governor Jon Corzine agreed on a budget deal today. The deal includes the sales tax increase from 6% to 7%, but with half the proceeds of the increase being used to reduce property taxes this year and all of the proceeds being used to reduce property taxes next year. Of course, what the legislature grants they can take away, so it will be interesting to see what happens in 2007. And in the election this fall.

It is expected that casinos will reopen either tomorrow or Saturday. The shutdown has already cost New Jersey coffers an estimated $2.6 million just from lost casino tax revenues.

News Story: AP

Assume you run an organization, and you discover that your revenues (income) are being exceeded by your expenses. What would you do? Would you, (a) Immediately close down your sixth largest source of income, (b) Close down your fourth and fifth largest sources of income, (c) Increase your budgeted expenditures by 9%, (d) Anger your customers by eliminating their recreational options, or (e) Increase your prices by 16.67% to cover the revenue shortfall (further angering your customers)?

If you’re Democratic Governor Jon Corzine of New Jersey, you would do all of these. Already the New Jersey Lottery is closed; horse racing and casinos will close tomorrow morning at 8am EDT (the New Jersey Supreme Court rejected their appeals); state parks and beaches will close tomorrow; and the only option that Governor Corzine is offering the state legislature (controlled by Democrats, by the way) is a sales tax increase. The Speaker of the State Assembly, Joseph Roberts (D-Camden) has rejected the tax increase.

So Governor Corzine moves down a path where he has put thousands of state workers on unemployment. Tomorrow he hits the private sector, casting thousands in Atlantic City to the unemployment lines. He has exacerbated the problems dramatically. Governor Corzine even makes Gray Davis look good! Today, as we celebrate Independence Day, his actions stand in stark contrast to what our Founding Fathers wrought. Luckily, the voters in New Jersey will head to the polls in November to vote for Governor. I haven’t seen any polls for New Jersey, but I’d expect that the Republicans in the Garden State won’t have any shortage of issues to campaign on.

News Story: AP

Democratic Governor Jon Corzine ordered all nonessential New Jersey government offices to close, and road construction projects, motor vehicle offices, and the state lottery all went dark. Governor Corzine wants an increase in the state sales tax of 1%; the state legislature, which is controlled by the Democrats has refused to go along.

Already Corzine’s shut-down order has stopped lottery sales, New Jersey’s fourth largest source of revenue. A threatened closure of casinos (New Jersey casinos must have Casino Control Commission officers on their premises at all times) would deprive the state of about $1.3 million a day in tax revenue. Also closed are state beaches and parks during the long holiday weekend.

We heard yesterday that one of the reasons that the leaders of the State Assembly are opposing Corzine’s proposed sales tax increase is not the increase in rate; rather, that it would also tax many additional items and services. For example, legal fees would be subject to sales tax. This has not been reported in the press, so we can’t verify this.

We would be remiss to not comment on the political impact of tax increases and government shutdowns. Some of you may remember when the Republicans shut down US government in a dispute with the Clinton White House. It was not a political success for the G.O.P. And very few taxpayers enjoy tax increases while government spending rockets up. New Jersey Democrats, in control of all wings of government, may have major problems this election cycle.

News Stories: FoxNews, Home News Tribune, New York Times.

Editorial: Wall Street Journal

I joke with my writing partner about New Jersey being one giant swamp. At least the Garden State’s politics are fun to watch—at a distance. Today, the New York Times reports that a few Democrats are now supporting Governor Corzine’s proposal to increase the sales tax by one full percent, from 6% to 7%. However, the Speaker of the New Jersey Assembly, Joseph Roberts Jr. (D-Camden) opposes the increase. Given that Roberts has final say as to whether anything comes to a vote in the Assembly, the sales tax increase is in danger.

New Jersey’s constitution requires a balanced budget by July 1st; it’s unlikely that this will occur. Governor Corzine is, according to the Times article, making plans to “…close parks, historic sites, campgrounds and casino and halt highway construction and the lottery should the state miss the deadline.” That sounds particularly brilliant. Let’s stop the lottery and casinos, two of New Jersey’s biggest sources of revenues. Of course, given New Jersey’s politics, perhaps this is inevitable.

New York Times article

…the state would probably be run much more efficiently than it is today. Their methods, though, might leave something to be desired.

However, the methods employed by Governor Jon Corzine leave a lot to be desired. Corzine wants to increase New Jersey’s sales tax rate by 16.67% (from 6% to 7%), and add a $1,424/month “bed tax” on hospitals. Certainly, it’s creative, but as Professor Maule notes this fee tax would just be passed on to users of hospitals. Health insurance premiums would rise, and hospitals will suffer. It’s likely that the number of available hospital beds would shrink. It is basic economics.

Luckily for residents of the “Garden State,” even his Democratic colleagues in the New Jersey Legislature aren’t happy with his proposals. The Newark Star-Ledger quotes Assemblywoman Joan Quigley as stating, “[this tax money would go into] a black hole…We are taxing hospitals to pay for roads and jails.”

Given the political climate in New Jersey (corruption and a very dysfunctional electorate) I won’t be surprised if Governor Corzine’s budget is implemented.

News Stories: Philadelphia Inquirer, Newark Star-Ledger

Remember Captain Renault from Casablanca? He steps into the back room of Rick’s Cafe, and says, “I’m shocked, shocked to find that gambling is going on in here!” A croupier then hands him a pile of money and says, “Your winnings, sir.” That’s how I feel when discussing corruption in New Jersey.

Last week I reported on corruption at the Department of Taxation. Today, courtesy of the TaxProf Blog, we find corruption in the school system. The report shows that administrators are making far more money than what one would expect. The TaxProf Blog then goes on to note that schools in New Jersey are funded by property taxes, and that New Jersey’s property tax rates are among the highest in the nation. The Wall Street Journal has a particularly good critique of this issue in an editorial today.

So what do you suppose New Jersey’s Governor Jon Corzine would do? Promise to stamp out the problem? A fight against corruption? How about a budget full of tax increases? No, he couldn’t have that kind of poor political timing.

Sorry, the cynics win.

“Residents see higher taxes, less relief under Corzine’s $30.9 billion budget” screams AP’s headline in Newsday. The article goes on to detail a $1 billion increase in sales tax (by increasing the tax rate from 6% to 7%), and another $0.8 billion increase in other taxes. To his credit, Corzine also wants to find a few programs to cut ($2 billion in spending on a $31 billion budget). However, while he may be cutting some programs, the budget is, overall, a 9% increase from fiscal 2006’s $28.3 billion.

Well, not really.

>From the Newark Star-Ledger comes word that the New Jersey Director of Taxation, Robert Thompson, Deputy Director Harold Fox (no relation), and Assistant Director for Compliance David Gavin have been suspended. The New Jersey Commission of Investigation alleges that the three received gifts from OSI Collection Services. Governor Jon Corzine ordered the expedited ethics investigation. The three were suspended with pay.

The Commission report alleges that the three were wined, dined, taken to spas, Broadway shows, and on golf trips. The report also alleges that the three allowed OSI to overbill New Jersey by $1 million. OSI collected delinquent taxes for the state on an outsourcing contract. The contract expired at the end of February and was not renewed.

News Story: Newark Star-Ledger