Budget panel dissects income tax cut proposal

TRENTON – A battle of politics and economics was played out in today’s Senate Budget Committee as Democrats and Republicans argued over the governor’s proposed 10 percent income tax cut.

David Rosen, the state’s Legislative Budget and Finance Officer, told the panel that a three-year phased-in implementation of the across-the-board cut would cost the state $150 million in fiscal year 2013, $565 million by fiscal year 2014, and more than $1 billion by fiscal year 2015.

Democrats pounced on those figures and criticized the administration for not having the state Treasurer attend the hearing.

“This is a policy discussion,’’ said Chairman Sen. Paul Sarlo, “and the administration won’t explain its policy.” Sarlo said he personally invited the Treasurer but he declined to attend.

“We all want to cut taxes,’’ he said, “but we don’t all benefit equally from all cuts.’’

“The question isn’t, ‘Who will pry money out of the cold, dead hands of legislators?’” said Sarlo in repeating Christie’s comment from a town hall last week. “It is ‘whose bank accounts will be the big winner under the governor’s proposal?’’’

The Democrats’ chief criticism is that an across-the-board cut unfairly benefits the wealthiest residents.

Rosen’s figures, for example, show that for someone earning $30,000 in those three years, the cuts would be $15.17, $30.33, and $45.50

Someone earning a million dollars would see cuts of $2,421, $4,843, and $7,265.

Sarlo said the property tax remains the real problem, but despite capping increases, the state still has the highest average property tax bill nationwide: $7,758.

Ninety percent of the state’s residents pay more in property taxes than in income taxes, Sarlo said.

Republican Sen. Anthony Bucco shot back that this meeting was premature. “We haven’t seen the budget, we’re not going to see the budget until (Feb.) 21,’’ he said.

He reminded the panel that the impact is unknown – and the partisan comments premature – until a budget proposal is unveiled, because the state must have a balanced budget. “We are getting ahead of ourselves,’’ he said.

Facts and figures

Rosen told the committee that in presenting a three-year look-ahead, his office assumed a 5 percent annual growth.

Rosen said that by fiscal year 2016, when the proposed cut is fully phased in, it would cost the state budget $1.34 billion.

In comparing rates among states, Rosen said the “cross-over’’ point with Pennsylvania is approximately around those earning $140,000; below that figure N.J. residents would generally be paying less than their counterparts in Pennsylvania.

In comparison with New York, the “cross-over’’ point would be higher, in the hundreds of thousands of dollars in income, he said, so that the vast majority of N.J. residents would be paying less than N.Y. counterparts.

New Jerseyans earning less than $200,000 pay more in property taxes than income taxes, and in some cases a great deal more in property taxes, according to the figures Rosen supplied to the committee, which were based on data from 2004.

For those earning $200,000 and upwards, the tipping point occurs in which they pay as much or more in income taxes than property taxes.

For example, in the 2004 data, for those earning $30,000 to $40,000 the median property tax was $4,232 and the median income tax $439. In that same year, for those earning $200,000 to $300,000, the  respective figures were $8,449 and $9,036.

Sarlo brought payments for pension and Transportation Trust funds into the equation, and said that by fiscal year 2016, the Legislature could be faced with about $3 billion worth of additional payments. He also said the committee would like to see updated figures from the state for years later than 2004.

And Republican Sen. Steve Oroho pointed out that these are among the reasons lawmakers must do their job of reining in the costs of government.

Sen. Kevin O’Toole added some history to the discussion. He  pointed out that even though there was an income tax rate revision in the 1990s that led to a reduction in income taxes there was no reduction in income tax revenue.

From 1993 to 1994 tax rates declined and “to the contrary,’’ he said, “revenues increased.’’

He added that there are people who want to “firebomb’’ proposals just because Gov. Christie originated them, and he echoed Bucco’s call for a fair examination of the income tax cut that the governor proposed.

In the end, the Democrats, as Sarlo said in his opening remarks, maintained that most studies show that cutting taxes on the wealthy does not spur the economy, while the Republicans argued that tax-cutting generates economic activity by freeing up money that is no longer going into the government’s coffers. 

Budget panel dissects income tax cut proposal