Steve Lonegan's tax plan is based on the following core idea: "My flat tax plan will start with a flat tax rate of 2.9% on every dollar earned. The rate will decrease to 2.5% the following year, and further to 2.1% in the third year. (Emphasis added)
Thus, the Lonegan flat tax plan presumably eliminates all deductions, exemptions, and credits. According to the latest available data from the Treasury, these exclusions from gross income total $26.8 billion. Seniors would lose their $2.1 billion retirement income exclusion; all taxpayers would lose another $10.2 billion of exemption deductions; another $5.8 billion of deductions would be ended, virtually of all these deductions are for unreimbursed medical expenses; and taxpayers would no longer be able to deduct $8.7 billion of property taxes to offset their state income taxes.
(The above figures are for 2005. Current exclusions would undoubtedly be a few billion dollars higher, and the taxes on these lost deductions would be about $1 billion.)
Under Lonegan's tax plan, one of the net effects would be a huge tax hike on families with a gross income of $70,000 to $80,000 who own a home with two or more children. In addition, seniors would lose their property tax rebates under Lonegan's plan. Whether there should be property tax rebates in the first place funded by the income tax is another issue, but eliminating a current tax refund is in effect a tax hike.
Another cornerstone of Lonegan's campaign is distributing the state income tax revenue to all school districts on an equal per pupil basis, which he asserts would then lead to a drop in property taxes of 20% in suburban towns. Fat chance.
Lonegan, a self proclaimed fiscal conservative and former mayor, should know and appreciate the first principle of government, namely, the bureaucracy spends as much money as it receives. If state school aid increases to suburban districts, spending will increase; property taxes will not decline. Suburban school districts would usethe additional funds from Trentonto increase spending on projects and programs that have been put on the back burner.
So why does Lonegan think his school aid formula will lower property taxes in the suburbs? Steve has not addressed this issue.
The only way to cut taxes in New Jersey and have the same low income tax rate for everyone is a massive program of decentralization. This will require a "revolution"-a titanic shift in the political culture of left wing suburbanites, the opinion molders in society, i.e., academics, editorial writers, political big shots, business executives, political activists and other wannabe policy wonks who think state government and/or local government has to provide so many services for the public to promote the general welfare.
But as former governor Jim Florio noted in one of his last budget messages, "government tries to do too much." And that's the foremost issue that needs to be debated and discussed in New Jersey.
Because of the state government' poor financial condition and a bleak outlook for the state economy, the downsizing of state government will continue no matter who wins the Republican primary tomorrow or is elected governor in November.