Over the next three weeks, Democratic leaders in the Legislature plan to consider 30 bills they claim will “jump-start” the state’s economy and create jobs. A sampling of the first seven of these bills (all of the others haven’t yet been publicly identified) makes clear that “jump-start” means cutting corporate taxes and expanding already generous business tax credits.
Because much of this legislation championed by the Democratic majority is co-sponsored by legislators in the Republican minority, it’s abundantly clear that the bills are on a fast-track through the Assembly and the Senate. The legislation is likely to land on the governor’s desk for his signature by early January.
New Jersey has been down this road before. In fact, we’re still paying for earlier bouts of such foolishness.
In 2001, Judith Cambria warned in a report for NJPP that New Jersey lawmakers’ penchant for cutting taxes, borrowing at unprecedented levels and manipulating pension funds would lead to trouble. Among the problems she predicted: a bankrupt transportation trust fund, high debt and large unfunded retirement liabilities for public employees. Sound familiar?
Four years later, another NJPP report analyzed the cost of Governor Whitman’s sales and income tax cuts in the early 1990s. The report estimated the tax cuts cost the state $24 billion in sales and income tax revenue between 1994 and 2005. And the cuts weren’t worth it. For nine out of 10 New Jersey households, the sales and income tax reductions were swamped by increases in property taxes.
But New Jersey need not be condemned to a history of repeating its mistakes.
Lawmakers should carefully and publicly consider all of the legislation and they should require at least basic understanding of what the bills will do and how much they will cost. At a minimum, each bill should be considered on three key points.
No bill should be discussed or voted out of committee without a complete fiscal analysis, known as a fiscal note. That note should estimate the revenue impact to the state (and to local governments if applicable). Particular attention should be paid to revenues that will be lost from a change in the statutes and how the state will manage those losses. Winners and losers should also be identified.
Take for example, A1676/S1646, known as the Single Sales Factor which is being considered by the Senate Budget and Appropriations Committee on December 8. The bill would change the way New Jersey taxes corporate income. Single Sales Factor has been on the table before-the last time in 2008. It didn’t become law, in part, because of its cost. No fiscal estimate was available when this Monday Minute was written. The most recent credible cost estimate of such a change was made in 2001, when the Assembly Commerce, Tourism, Gaming and Military and Veterans’ Affairs Committee held a hearing on a similar bill. At that time, the state Treasury estimated that switching to the Single Sales Factor would cost the state as much as $250 million annually. If that estimate hold true for this year, that’s 11 percent of the $2.3 billion the state expects to collect from corporations under the tax this year. All of those tax reductions would benefit large, multi-state corporations, like Johnson & Johnson and Verizon not small businesses operating only in New Jersey.
The stated goal of the bill package introduced by the Democrats is job creation, and clearly the leadership is willing to expend state resources to that end. But it is critical, especially because the state’s finances remain so precarious, that proper analysis be done to explain clearly how each bill will create jobs; how many jobs it will create; what type of jobs will be created and where specifically the jobs will be located.
This is not something New Jersey has ever done before even though it should have. In November 2007, lawmakers enacted the Development Subsidy Job Goals Accountability Act, which charged the state with the responsibility of measuring the costs and benefits of its business subsidies (bonds, grants, loans, loan guarantees, matching funds and all tax expenditures). The act required the state to produce a comprehensive analysis of its largesse to the business community by documenting the number of jobs created; the average pay and benefits for each job; and the number of workers with health insurance. The report has never been done.
In March, New Jersey produced its first Tax Expenditure Report, which showed the state is losing $15 billion in FY2011 because of loopholes and exemptions in its tax code. The Tax Expenditure Report is useful because it tracks revenue losses from the bills after they become law. But it’s only hindsight. New Jersey taxpayers deserve proof — or at least reasonable evidence — that cutting corporate taxes and providing credits, subsidies and other incentives to businesses will, in fact, stimulate new economic growth and that New Jersey will be the primary beneficiary.
New Jersey is entitled to (at least) these minimal measures of transparency and accountability from its elected officials. For too long the state has relied solely on those who benefit from tax breaks and subsidies to tell them if the program was successful. The state must do better. And the members of the General Assembly and the Senate should embrace this opportunity to tell their constituents whether taxpayers are truly getting their money’s worth.