Hard Tax Cap The Only Way to Go

Commentary — By on July 3, 2010 at 6:42 PM

Paul V. Tyahla
July 3, 2010
This op-ed was printed in the Daily Record and the Times of Trenton

As the state Legislature gathers for its special session on property taxes, some lawmakers are touting a 2.9 percent cap with what they consider reasonable flexibility for municipalities. Where local administrators see flexibility, taxpayers should see warning signs, given the long history of false promises when it comes to reducing property taxes in the Garden State.

The first modern attempt at curbing the growing burden of high property taxes was when Gov. Brendan Byrne signed the income tax into law. At the time, the rate was just 2 percent. Income tax collections are constitutionally dedicated to property tax relief, and in 2007 New Jerseyans paid more in state-local income taxes than citizens of 41 states.

An outsider might think that New Jersey would then have very low property taxes, but they would be wrong. In addition to being saddled with high income taxes, New Jersey has the highest property taxes in the nation. The promise of using one tax to substitute for another turned out to be phony and doubly punishing for New Jersey.

Governors and legislators have also promised a blend of exemption-laden spending caps and tax rebate schemes all designed to keep taxes down while giving flexibility to local bureaucracies. The prior caps, dating to the 1970s, have proven ineffective. From 1980 to 2007, property taxes per capita rose 102 percent when adjusted for inflation. Meanwhile, rebates, which involve sending money to Trenton in the hopes some might come back to you, tended to shrink during rough budget cycles when New Jerseyans were hurting most.

In 2006, the legislature and Gov. Jon Corzine raised the sales tax 17 percent as a “down payment” on permanent reform. Four years later, the rebate program is nearly extinct while the higher sales tax rate remains.

The 2.9 percent cap approved by the Legislature is full of exemptions for some of the biggest cost drivers in local government. It represents a continuation of tradition of ineffectiveness. It would likely be an improvement over the status quo, but only a modest one at a time New Jerseyans need more. It will also be statutory and not constitutional, giving legislators the ability to revise it without voter approval.

Massachusetts residents have enjoyed a hard property-tax cap for decades, and the experience there has proven New Jersey can do better. A study published last month by the Common Sense Institute of New Jersey and the Manhattan Institute for Policy Research studied the impact Cap 2.5 has had in the Bay State in terms of property taxes, overall tax growth and educational outcomes. During the same period in which New Jersey’s property taxes more than doubled, Massachusetts, with its hard 2.5 percent cap, saw property taxes grow by just 22 percent. Massachusetts residents did not just swap one tax for another. During the study period, overall growth in state and local taxes was 58 percent in the Bay State, compared to 108 percent in the Garden State.

As a result, New Jersey now has the heaviest state-local tax burden while the commonwealth formerly known as “Taxachusetts” fell to 23rd, according to the Tax Foundation. Hard cap opponents warn of dire cuts in municipal services as towns struggle to operate under a cap. To believe that is to ignore the fact Massachusetts students outperformed their peers in New Jersey, as measured by the National Assessment of Educational Progress. K-12 spending is by far the largest municipal service provided, and the easiest to compare because all students in America take the same test.

The higher scores occurred across demographics groups, and despite lower per-pupil spending by our neighbors in New England. To be sure, these outcomes were not achieved because of a cap, and civil service and educational reforms must accompany any cap for New Jersey to achieve relatively lower taxes while maintaining high levels of government service. However, those two goals are not mutually exclusive.

Massachusetts has provided a worthy model for how to attain both, and New Jersey taxpayers deserve this type of revolutionary change rather than more of the same.

Paul V. Tyahla is Executive Director of the Common Sense Institute of New Jersey

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