State Revenue Problems--New Jersey

Recently, I blogged on Angry Bear and A Taxing Matter about Michigan's fiscal crisis, brought about in large part by the financial meltdown and consequent business and job losses.  I suggested that Michigan should move away from its flat income tax to adopt a progressive rate, peaking at less than 8% for multimillionaires. 

The progressive rate is wise for three reasons: 

• tax revenues are needed because budgets simply can't be cut enough (especially during a recession when additional services for the vulnerable are needed) and it is in fact, possible to milk a producing cow and not possible to squeeze blood from a rock (the feasibility rationale);
• those at the top of the income distribution have a greater ability to pay the revenues needed, and have less use for each additional dollar they earn than those at the bottom (the ability to pay rationale); and
• those at the top of the income distribution receive most of the benefits of the state that are funded by taxes (the benefits received rationale).

New Jersey has adopted, at least as a temporary one-year change, the proposal for making income tax more progressive.  It's budget stop-gap measure calls for a one-year increase in the state income tax applicable to those making more than $400,000 a year (about 61,000 New Jersey residents) and limitation on the property tax deduction based on income (a $5000 cap for those earning between 150 and 250 thousand, and a zero allowance for those earning above 250 thousand).  The income ceiling for those eligible for New Jersey's property tax rebate program will continue to decline, to $75,000 from last year's $150,000.  Other taxes will go up--lottery winnings above $10,000 will be taxed; cigarettes, wine and liquor will be more expensive.  See, e.g., Chen, New Jersey passes Budget Fueled by $1 Billion in Tax Increases, NY Times, Jun 26, 2009.

The result is that the burden will mainly be borne by those making more than $82,000, and will be about $3000 more for families making half a million a year with $20,000 in annual property taxes.  And New Jersey won't be making the cuts to education and health care that other states are.