BY JAMES J. FLORIO
The weak November jobless numbers, gaining only a disappointing 39,000 jobs, is especially troubling after more than a year of continued growth for the overall US economy. That unemployment fact, combined with the reality that business in general is doing better, is perplexing. Annualized corporate pre-tax profits of 1.7 trillion dollars for the third quarter is almost in record territory. Business productivity is up to an annualized rate of 4.2%, as is cash on hand, almost to embarrassing levels. So much so that dividends and stock buybacks are occurring more frequently in this post-crisis period.
How does one reconcile this inconsistency between economic recovery and prosperity versus worker stagnation and deprivation? It may be that we are in a new economic era wherein “full employment” will be 8-10% because Corporate America has determined that it can prosper with a much smaller workforce. In fact, the smaller workforce with a reduced payroll, and, therefore, reduced costs, may be the only way US businesses can be competitive in the world marketplace. Cash generated will be spent on labor-saving technology and inducements to get more productivity out of existing workers. Cost controls and overseas markets clearly have been the key to current business and stock market advances in the face of weak domestic demand, resulting in part from unemployment.
The impact of such developments on New Jersey, and all of the States, will be dramatic and harsh. Without substantial hiring to reemploy workers, revenues from income, sales and other taxes will continue experiencing shortfalls. New Jersey’s property tax base will continue shrinking as substantial unemployment impacts homeowners’ ability to pay taxes and mortgages. This troubling picture is not unique to New Jersey. Some states are even structurally worse off; think Michigan, California, Illinois, New York.
The end game could be a full-fledged crisis and dramatic change. The crisis arrives when all of the Governors realize that the problems they face are unable to be dealt with due to the inadequate and inequitable tax bases from which they are currently working. The obvious New Jersey handicap being its over-reliance on the regressive property tax for so much of its public expenditures. With escalating public services required due to the “new norm” of unemployment, the situation will prove to be intolerable. New Jersey’s shortfall in funding its health and pension programs of almost $100 billion dollars highlights the impossibility of the situation.
The dramatic “change” component of the equation will occur when the Governors all go to the White house to present to the President, whomever it happens to be, the keys to their respective State Houses. They will pronounce their jurisdictions as ungovernable under existing structures and systems. The response will be, however, as counter-intuitive as it may seem now, a federal assumption of current state responsibilities because there is no alternative. The revenues needed to fund this transfer of functions will be provided by the imposition of a broad-based national value added tax, i.e., a less visible sales tax, or some form of carbon-based, or BTU tax. The revenue-sharing benefits to the States could provide the necessary political support for such initiatives. Nothing generates support like help in dodging a bullet.
Like it or not, the decentralization and diffusion of power in our 1787-created Governmental system must be re-evaluated in this global arena we now find ourselves in. We face awesomely efficient competitors around the world. Our task is to eliminate some of our inherent inefficiencies while preserving our basic principles of Governmental accountability. Let the debate begin.
The author is a former Democratic Governor of New Jersey, who served in office from 1990 to 1994.