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From Governing’s Supplemental information | Introduction
Nevertheless, McGreevey hadn’t reached the governor’s office by playing safe. He gave it a try. He went after the corporate tax, pointing out in countless speeches that the revenue received from the state’s biggest businesses had plummeted in the past two decades, and that 30 of New Jersey’s top 50 employers had paid only the minimum corporate tax of $200 in the most recent year.
McGreevey didn’t get all the changes he wanted, but the legislature gave him some of them. It curtailed the ability of corporations to shift income to out-of-state subsidiaries and passed an alternative minimum tax to make legal evasion more difficult. Although some of the additional revenue raised through these reforms will find its way back to corporations via new tax credits starting in 2006, the changes are expected to substantially increase corporate tax receipts to $1.8 billion in the current fiscal year. Supporters called them a significant step toward equity. “We have made the system more fair,” said State Treasurer John McCormac, “by leveling the playing field for all companies regardless of size, industry or location.” The major corporate citizens didn’t exactly agree. They argued that McGreevey was destroying decades of effort to encourage economic development and corporate investment in the state. Federated Department Stores released an angry letter to the governor, bemoaning New Jersey’s unfriendly business environment and threatening to lay off employees, close stores and cancel expansion plans. By late fall, the governor’s approval rating from the New Jersey Business and Industry Association was 11 percent. On the other hand, no mass business exodus has come to pass. So far, for instance, Federated has continued with expansion plans on some of its stores in the state. Just in case, New Jersey has set up a commission to keep watch on the way the tax changes operate in practice. The current administration’s approach to corporations has been consistent with a general get-tough stance on tax compliance. New Jersey is among a minority of states that has been adding, rather than subtracting, staff and funding for its tax collection effort, which is seen as a profit center, rather than a cost center. “If you’re in a business, you don’t lay off the people that are bringing in the revenues,” says Harry Fox, deputy director of the Division of Taxation. New Jersey keeps close watch on its borders with Pennsylvania and New York, for example, to find companies that may be coming across to do business and failing to pay the requisite fees. Investigators search truck manifests and visit construction sites to make sure contractors are registered. Last spring, 11,000 out-of-state lawyers who had been doing temporary work in New Jersey were notified that they might be liable for state taxes. There’s a special emphasis on going after industries where problems have existed in the past. “Our state has targeted pizza parlors, dentists, bars, restaurants,” says McCormac. “They’ve picked industries where there has been a lack of compliance and gone after them.” Neither the new corporate taxes nor the compliance effort will solve New Jersey’s current budget problems. The state faces a $4.5 billion gap in its $24 billion budget for fiscal 2004. A good portion of this shortfall is the result of state policies and procedures, not economic conditions. The sales tax exempts food, clothing, medicine and many services, and the income tax was cut drastically during the 1990s. Revenue estimates have not been very accurate in the past, and the state is facing some big uncontrolled increases in spending, notably in pension costs for its public employees. Meanwhile, property taxes are a major political nightmare. After New Hampshire, New Jersey has the greatest dependence on property taxes of any state in the country. With no growth in state aid to local governments, many towns were forced to raise property taxes even higher last year, infuriating the residents. Recent attempts were made to offer some relief through rebate checks that averaged $500 for most homeowners, plus additional give-backs based on age, income and disability. But these haven’t calmed the rancorous public. State officials have found it difficult to convince taxpayers that the modest rebate checks that come to them in the mail are compensation for the gargantuan checks they write out for property taxes every few months. There are alternatives to the high property tax rates, but they are not politically pleasant ones. Every New Jersey office-holder has vivid memories of what happened to Governor Jim Florio after he raised sales and income taxes in 1990. That’s one reason why there’s been increasing talk of a constitutional convention to change the tax structure and modify the code to make property taxes less onerous. This would require increases in other taxes, of course, just as it did in 1990, but it would toss questions of revenue structure to specially elected delegates who wouldn’t have to worry about reelection. A bill to start that process began passing through legislative committees at the end of last year. Copyright © 2003, Congressional Quarterly, Inc. Reproduction in any form without the written permission of the publisher is prohibited. Governing, City & State and Governing.com are registered trademarks of Congressional Quarterly, Inc. |
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ast year was no year for tax reform, and James McGreevey, New Jersey’s Democratic governor, knew that as well as anyone else. He had just won the job after a long season of campaigning in which the absence of enthusiasm for major changes in the tax structure was all too evident.