If ever a state were ripe for bold economic reform, it would be New Jersey, which is shedding jobs and is in perennial budget crisis despite one of the highest tax burdens in the land. So why is Chris Christie, the GOP front-runner in the state's 2009 gubernatorial race, taking cheap shots at the flat tax?
Mr. Christie is a former U.S. attorney who did yeoman work putting away the state's many political thieves. But he seems to be running scared in next month's Republican primary, when he faces former Mayor of Bogota Steve Lonegan, who is proposing to scrap Jersey's job-killing graduated income tax that has rates running from 1.4% to 8.97%. Mr. Lonegan wants to replace it with a 2.98% flat tax on the first dollar of income earned.
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That's a good idea that would give the Garden State the lowest tax rate in the Northeast after New Hampshire. Mr. Lonegan says this will ensure that when New Jersey incomes "move-up," the residents "don't move out." Over the past decade, New Jersey has suffered the fourth highest rate of out-migration of all the states, with nearly half a million residents fleeing to the likes of Delaware, Florida and even New York.
Mr. Christie is assailing Mr. Lonegan's proposal on TV, radio and the Internet as a tax hike on the poor. His TV ad claims the flat tax isn't fair because it would raise taxes on "almost 70% of working families." That sounds like he's reading from President Obama's teleprompter. Mr. Lonegan counters that only 40% would pay more -- by an average of less than $300 for a family earning $20,000 -- and their tax liability would still be lower than in New York and Pennsylvania. The average New Jersey family's tax bill would fall by $1,000 a year.
Whether a flat tax that modestly raises the tax payments of some Americans will fly politically is hard to know. The state and federal tax code are so laced with tax credits and exemptions that any base-broadening, rate-cutting reform is bound to raise taxes on someone. Our friend Steve Forbes, a New Jersey resident, believes that a flat tax that "cuts taxes for everyone" is the way to go. Mr. Lonegan counters that every working New Jersey resident should pay something -- on the principle that everyone should bear at least some of the cost of government.
The larger point is that either reform would be far better than the current tax code for New Jersey's poor, who suffer the most from the state's high rates that drive jobs and capital elsewhere. A flat tax would help all income groups by attracting those resources back to the state. Surely Mr. Christie realizes that.
Both GOP candidates agree that the 103 tax increases, including income and sales tax rate hikes, under current Governor Jon Corzine and his predecessor, the disgraced Jim McGreevey, have done great harm to their state. From 2001 to 2008, New Jersey lost a net 25,000 private-sector jobs even as public employment grew by 65,000 workers. The state's finances are such a mess that in late 2007 Governor Corzine proposed the political "Hail Mary" of mortgaging New Jersey's toll roads in return for a guaranteed revenue stream. He lost, thanks to opposition led by Mr. Lonegan.
If he wins the primary, Mr. Christie will need his own tax reform agenda, both to defeat Mr. Corzine and win a mandate for changing the corrupt mess that is Trenton. Mr. Christie should understand that a flatter tax is an economic and anticorruption strategy because it limits the opportunity for political mediation on behalf of special interests. Republicans can't credibly be the candidates of growth if they echo liberal class-envy rhetoric to attack tax reform.
Wow. That was one of the more cogent pieces ever penned by Dr Ganem.
Steve Forbes had to resort to the "Flat tax that is a tax cut" as people recognized that simply going to a revenue neutral flat tax would cut rates for a few wealthy and raise them for the rest of us. That is an awful idea at the federal level. In fact, the high end needs to see significant increases in taxes paid net of all deductions (and that includes me, for the moment).
A small, across the board income tax might not be a bad idea at the state level. Lets face it - how many souls will truly suffer for having to cough up 3%? I have already pointed out that residency is easy to change (fraudulently or legitimately) from state to state but not from nation to nation. Besides, not counting tax havens and the developing world, our taxes are the lowest and thus flight is not an issue.
The "old states" need to completely restructure their bureaucracies. IMO there is far more waste, fraud and abuse per dollar spent at the state level, particularly in those states. They also suffer from the same "legacy costs" that are killing Detroit. If you lived in any of those states you would not feel like you were receiving more government services - possibly the contrary. Their problems are not going to be solved by an economy that begins growing again or by cutting spending around the edges. They all need wholesale reform.
Jimmy will try to twist my comments into suggesting that I now logically support flat taxes across the board - I do not - I favor a heavily progressive system that taxes all but those in poverty at least a nominal amount. Again - the issues at the federal and state levels are a completely different kettle of fish. I think the JFG's New Jersey idea is a good one from a pragmatic standpoint.
Ummm...Rich
The WSJ thingy at the top? Stands for Wall Street Journal.
Jimmy no can write that well.
Ahhhh, I figured it had to be somethin'...
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