Governor Christie stated on Bloomberg radio he wants to cut the state income tax in order to make New Jersey more attractive than Pennsylvania and New York to do business. However, if the governor wants to make New Jersey one of the most attractive states in America to do business, if not the most attractive, the income tax should be cut all the way to zero. By phasing out the income tax over the next several years, Governor Christie and the Legislature would strike a major blow for liberty and prosperity, the New Jersey state motto.
Usually, income taxes are paid by individuals, families and businesses and go into a general fund to pay the government’s bills. The public is then supposed to receive services and benefits for the taxes they pay. That’s how taxes and spending are supposed to work for the benefit of all citizens, in theory. In reality, heavy taxes are levied on some for the benefit of others. New Jersey’s income tax falls into that category. In other words, the New Jersey income tax redistributes income.
The New Jersey state income tax is devoted for so-called property tax relief. One of the worst tax policies is to create a new tax to lower a current tax. Typically, the new tax starts off relatively “low” like the New Jersey income tax in 1976, while the existing tax—in New Jersey’s case local property taxes– is then lowered a bit. With nearly 35 years of experience, the evidence is overwhelming; the income tax has failed to stem the rise in property tax and it has nearly quadrupled from a flat 2.5% to 9% on upper income taxpayers, at the margin.
Because the state income tax is now steeply progressive, upper income earners pay 9% on the last dollars they earn. Add to that to the federal income tax and Medicare tax of 1.45%, and the marginal tax rate in New Jersey is closing in on 50%, and will increase after December 31, 2010, if the Bush tax cuts are allowed to expire.
In addition, this year property tax relief has disappeared completely for dozens of upper income communities as their state aid from the income tax was cut to zero. The income tax essentially “robs Peter to pay Paul.” Taxpayers in middle and upper income communities are taxed to pay most of the school costs of the Abbott school districts.
Abolishing the income tax would force local school districts to make the hard choices about school funding they have not had to do because the income tax propped up the out- of-control spending that has driven costs up for more than three decades. Moreover, the state constitution must be amended to eliminate the “thorough and efficient” clause, thereby getting the Supreme Court out of the school funding decision making business.
Mark Zuckerberg, founder of Facebook, will make a $100 million gift to the Newark to improve their schools. This could be the first major step in using philanthropic donations to help fund Abbott school districts.
The time has come to end the redistribution of income in the state of New Jersey. Abolishing the income tax would be a giant step in the right direction.