Revisiting millionaire’s tax pros, cons

The debate on whether or not to award a tax cut has resurfaced again, with virtually the same arguments as last year, and with the millionaire’s tax once again being floated by some Democrats.

On Monday morning, Gov. Chris Christie said he was pursuing a 10-percent income tax cut plan that would be reflected in residents’ property tax bills. It’s a plan that largely mirrored one that Senate President Steve Sweeney (D-3) proposed unsuccessfully last year.

Some Democrats quickly trounced the idea. Democratic gubernatorial candidate, Sen. Barbara Buono, (D-18), quickly dismissed it, saying the governor was relying on rosy revenues and citing the now-familiar talking points about how middle-class and working-class residents’ taxes have actually risen.

She called on Christie to sign the very bill he vetoed last year, the millionaire’s tax.  

“If he really wants a tax cut, he should agree today to sign a millionaire’s tax that ensures we can pay for relief for working and middle-class families,” she said.

The governor’s push for a tax cut picks up from where he left off in his budget address, in which he said he would “let the people decide,” referring to the legislative elections this year where every seat is up.

Assembly Democrats, who floated the millionaire’s tax proposal last year, also slammed Christie’s plan Monday, with similar arguments as last year; that the state doesn’t have the revenues to support a tax cut.

“The Assembly leadership has made it very clear they would consider a tax cut that was paid for responsibly, but Gov. Christie zealously protects tax breaks for the mega-rich and mismanaged the state budget into a massive shortfall,” said Assemblyman Vincent Prieto, (D-32) of Secaucus, the lower chamber’s budget officer.

Like Prieto, Sen. Paul Sarlo, (D-36) of Wood-Ridge, while not dismissing the idea for a tax cut, questioned why not just reinstate the Homestead rebates for the current fiscal year instead of postponing them until next fiscal year.

But Michael Drewniak, Christie’s spokesman, called the Democrats’ stances just a case of more politics.

“It’s mystifying that there are members of the Legislature who are so reflexive in rejecting a responsible tax cut,” Drewniak said. “I guess they like the politics of rejecting the Governor’s proposal more than they do giving relief to overburdened middle- and working-class families.”

Drewniak added that the administration “recommended a safety valve be built into the law to forestall the annual tax cut in the event revenues fall short.

“That meets their prior purported concerns when many of them first promised, and then reneged, on supporting a bipartisan tax cut backed by the Senate President (Steve Sweeney),” he said.

Many Republicans argue that by providing tax cuts, the economy would be stimulated and job creation would take place.

Senate Minority Leader Tom Kean Jr. called it “lowering the state’s anti-tax burden.”   And he said it would be a way for the state to increase its competitiveness.

Republican Budget Officer Sen. Anthony Bucco, (R-25) of Boonton, said giving a tax cut “will give families and job-creating businesses certainty that help is coming.”

Last year, Assembly Minority Whip Scott Rumana, (R-40) of Wayne,  said a tax cut “will maintain the economic momentum we have realized over the past two years.”

But a lot of jobs have to be created to make up for or equal the tax revenue derived by the income taxes a millionaire would pay.

It’s easy to see why a millionaire’s tax is popular among Democrats: it produces a major revenue jolt. Also, an analysis by the Office of Legislative Services (OLS) shows that the multiplier effect of several workers whose combined income equals $1 million doesn’t produce nearly the same amount of income revenue that the tax impact on a single millionaire would.

According to OLS, the analysis finds that taxing an individual who made an additional $1 million derived from investments in the stock market would bring the state an extra $89,700 in income taxes. However, if there were 20 newly created jobs each paying $50,000 (for a combined $1 million), the combined state income tax revenue that would be produced is a mere $16,100, according to the analysis.

The income tax rate for a millionaire is 8.97 percent, while the individual earning $50,000 is taxed at 1.61 percent.

The analysis found that 111 new, $50,000-per year jobs would equal the amount of income tax paid by a wealthy resident who made a $1 million windfall from the stock market.

“The state’s coffers would receive more than five times as much from the millionaire with $1 million of additional income than from these 20 new employees,” the OLS study found.

Starving the state government of revenues is one thing that Democrats would not want to see, since it means less money for various government programs and services.

But business groups have said that  New Jersey’s funding problems and its heavy reliance on the wealthy for more than half of income tax revenue is a problem that needs to be changed to reduce volatility.

The New Jersey Chamber of Commerce last year commissioned a study that proposed options for the state to wean itself from dependency on the wealthy residents.  Doing so could add more predictability to the budget crafting process and less likelihood of service and program cuts.  

“This in turn has made it extremely difficult for state leaders to forecast revenues and construct realistic budgets, resulting in abrupt changes in public services, structural budget deficits, debt increases and credit rating downgrades,” the chamber of commerce said in a statement regarding the study.

Among the alternatives of the study, conducted by Capitol Matrix, of California:

*Adopting a flat tax;

*Reduce the tax rate for capital gains – now taxed as ordinary income in the state;

*Rely more on sales tax and taxes that have more stability.

*Allow income averaging.

*Build up a larger surplus.

*Use larger than anticipated revenue spikes to pay off lingering debt, such as pension obligations. 

On the proposals to reduce capital gains taxes or adopting a flat tax, the study made no secret of the fact that middle-class and low-income residents would be impacted, since the options tend to be more regressive.

But the study argued that since all residents benefit from the services, more should be asked from those who haven’t pitched in as much.

“The countervailing argument is that some increase in the bottom rates is consistent with the principle that government services for education, health care, public safety and other purposes benefit citizens of all income levels, and everyone should have a stake in controlling the cost of government.”

 

Revisiting millionaire’s tax pros, cons