Higher Taxes Who Has Been Complaining About the Sales Tax Anyway?
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NJEA: HIGHER TAXES WHO HAS BEEN COMPLAINING ABOUT THE SALES TAX ANYWAY? MIKE LILLEY JUNE 26, 2019 WHO HAS BEEN COMPLAINING ABOUT THE SALES TAX ANYWAY? “Increasing the gas tax makes sense. But it’s irresponsible to negotiate a deal that raises this tax while reducing other state revenues ... And who has been complaining about the sales tax, anyway?” 1 -- NJEA Executive Director Ed Richardson, 2016. Apparently not Richardson. After all, he is a multi-millionaire, himself, having been 2 paid $2.98 million of taxpayer dollars from 2013-2016. Maybe Mr. Richardson has forgotten that gas and sales taxes are paid by the same people whose tax dollars made him one of New Jersey’s one-percenters. Gas and sales taxes are also the least progressive taxes. They are the same for everyone and thus hit middle-class New Jerseyans much harder than they hit a one-percenter like Richardson. Perhaps that is why he totally disregards their impact on middle-class New Jerseyans - like the average teacher, who makes $76,000 a year. Where is the tax “fairness” in that? There’s a reason why the NJEA constantly pushes for higher taxes. The facts show that the NJEA helped construct a system that automatically and perennially squeezes budgets and requires constant tax increases at both the state and local level. At the local level, the “step and lane” salary schedules automatically increase salaries regardless of budget conditions, leading to continuous upward pressure on local property taxes. Generous and growing health benefits costs, as well as prevalent property tax caps, add to that pressure. To alleviate this, the NJEA has consistently pushed for greater state education aid and the state taxes necessary to fund it. But, thanks to the NJEA’s political clout, retiree benefits are the responsibility of the state. Pension over-promising and under-funding and exceptionally generous retiree health benefits – all of which the NJEA played a significant role in bringing about – perennially squeeze state budgets. On top of this, New Jersey Supreme Court-mandated extra funding for lower-income school districts creates additional demand for state tax revenues. 1 New Jersey Education Association, “Better Choices Coalition Challenges TTF Deal,” October 4, 2016, https://www.njea.org/better-choices-coalition-challenges-ttf-deal/. Richardson’s comments concerned the 2016 Transportation Trust Fund deal between Gov. Christie and the legislature that raised the gasoline tax by 23 cents, eliminated the estate tax and cut the sales tax to 6.625 percent from 7 percent. 2New Jersey Education Association, IRS Form 990 “Parent” filings, 2014-2017. 1 Over decades, the NJEA’s solution has been to push for higher taxes at all levels of government, with the predictable result that New Jersey has become one of the highest-tax states in America. How Do New Jersey Taxes Compare to Other States? “No Surprise Here – New Jersey Has Largest Property Tax Load in Country …,” said a 3 recent NBC New York headline. They should have added “Again.” Once again, New Jersey leads the nation with both the highest average property tax burden and the 4 highest effective property tax rate. This surely was no surprise to New Jersey taxpayers either, many of whom reside in the five New Jersey counties that rank in the top 10 5 counties nationwide for the highest property taxes. But it is not just property taxes that are high in New Jersey. In its 2019 report, the Tax Foundation ranked New Jersey as the worst overall tax climate in the country—for the fifth straight year. The state ranked in the bottom three for income and property taxes, 6 and in the bottom six for sales and corporate taxes. In absolute dollar terms, WalletHub found that New Jersey has the highest state and local tax burden in America 7 at $11,119. The bottom line is that New Jersey is a very high tax state. Why Is New Jersey Such a High-Tax State? One common answer is that New Jersey has 565 municipalities, 590 school districts, and 21 county governments, and these overlapping layers of government drive up costs. Certainly, redundancies, overstaffing, and other factors associated with bureaucratic creep play a role, but due to New Jersey’s population density, research shows that they 8 are not significant drivers of New Jersey’s sky-high taxes. 3 NBC New York, “No Surprise Here – New Jersey Has the Largest Property Tax Load in Country, Rest of Tri-State Follows Close Behind, Report Says,” nbcnewyork.com, February 26, 2019, https://www.nbcnewyork.com/news/local/No-Surprise-Here--New-Jersey-Has-Largest-Property-Tax-L oad-in-Country-Rest-of-Tri-State-Follows-Close-Behind-506397321.html. 4 John S. Kiernan, “2019’s Property Taxes by State,” Wallethub, February 26, 2019. 5 Aimee Picchi, “Which homeowners around the U.S. pay the highest property taxes?” cbsnews.com, April 4, 2019, https://www.cbsnews.com/news/property-tax-which-homeowners-around-the-u-s-pay-the-highest/. 6 Jared Walczak, Scott Drenkard and Joseph Bishop-Henchman, “2019 State Business Tax Climate Index,” Tax Foundation, September 26, 2018, 3, 5. 7 On a median state household. John S. Kiernan, “2019’s Tax Rates by State,” Wallethub, March 12, 2019. 8 th New Jersey ranks 36 in the number of municipalities per 10,000 people. New Jersey Economic & Fiscal Policy Workgroup, Path to Progress, August 9, 2018, 22. Hereinafter, Path to Progress. New Jersey also 2 The real answer is simpler: The single biggest driver of New Jersey taxes is the combined cost of public education at the state and local level. Let us stipulate that New Jersey has one of the top public education systems in the country. Our teachers deserve a great deal of the credit, and school districts must offer salaries and benefits sufficient to attract high quality teachers. This costs a great deal of money but, in and of itself, should not push the state into fiscal crisis. The current reality is that public education is by far the largest portion of a resident’s average annual tax bill. Education spending consumed $28.5 billion of the total $65 billion New Jersey collected in state and local taxes in FY2018 – 44 percent of every tax dollar (compared to about 30 percent for municipalities and counties and 27 percent for 9 state government). NJEA President Michael Johnson stated the obvious reality: “Our salaries and the funding for education programs and services comes from one 10 source—tax dollars!” In their study of New Jersey, Eileen Norcross and Frédéric Sautet of the Mercatus Center concurred: “The progression of tax policy and spending in New Jersey reveals that much of this system evolved due to the political pressures applied by interest 11 groups to increase spending in certain areas, in particular education.” By relentlessly pursuing increased education spending at both the state and local levels, the NJEA—through both its local collective bargaining monopoly and its unmatched state-level political clout - has been a relentless and powerful driver of higher taxes in New Jersey. The Cost of Local Public Education Drives Local Property Taxes ranked 36th in the country for total government units per capita. Raphael J. Caprio and Marc H. Pfeiffer, Size May Not Be the Issue, Rutgers University, Bloustein Local Government Research Center, November 2014, 16. Nor does the cost per capita of municipal government vary significantly between large and small municipalities. In 2017, general administration costs per pupil (which include costs for boards of education and superintendents’ offices) were $376 out of total per-pupil expenditures of $18,920. Educational Finance Branch, “Public Education Finances: 2017,” US Census Bureau, June 2018. 9 Cost of education from Path to Progress, 19. Cost of municipal, county and state government from Richard K. Keevey, “Our Fiscal House Is Fragile – On Two Counts,” NJSpotlight, March 29, 2019. 10 New Jersey Education Association, “Lead the way in school elections,” NJEA Review, 72, no. 8 (April 1999): 6. 11 Eileen Norcross and Frederic Sautet, “Institutions Matter: Can New Jersey Reverse Course?” (working paper, Mercatus Center at George Mason University, July 2009), 73. 3 Public education is by far the largest component of the average New Jersey property tax bill, making up 52.4 percent (versus approximately 30 percent for municipal 12 government and 18 percent for county government). In 2017, New Jersey spent an average of $18,920 per pupil, the third highest among the states and 55 percent higher than the national average. In fact, New Jersey has ranked among the top three states in per-pupil spending in 25 out of 26 years since 1992, and has spent an average 59 13 percent more than the national average during that time (Figure 1). Source: US Census Bureau Looked at another way, from 1994 to 2017, while K–12 student enrollment basically remained flat (up 18 percent in 24 years), overall K–12 spending and employee salaries 14 and benefits have risen 158 percent and 166 percent, respectively (Figure 2). 12 Path to Progress, 19. Data for municipal and county government from New Jersey Education Aid, “Education Spending and NJ Taxes,” December 13, 2016, https://www.njeducationaid.blogspot.com/2016/12/ education-spending-and-nj-taxes.html 13 US Census Bureau, Public Education Finances, 1992-2017. 14 Ibid. 4 Source: US Census Bureau Naturally, the NJEA’s first priority has always been increased local public education spending, with property taxes serving as a means to that end. Indeed, the NJEA has confirmed that one of its main goals in local district politics is “making maintenance and improvement of quality schools the first school board priority rather than control of 15 the tax rate.” New Jersey’s elections watchdog, the Election Law Enforcement Commission, found that local education spending has a “direct and significant impact on local property 16 taxes.” High education spending means high property taxes, and in New Jersey education spending is very high.