New Jersey is a Fiscal Time-Bomb

NJ Spotlight | Budget Expert: Income Tax Cuts Will Benefit the Rich.

Christie and the democrats debate the merits of the proposed 10% tax cut and both miss the train. They want to make omelettes without cracking eggs, gain without pain, have the cake and eat it too.  As the Office of Legislative Services points out: The Tax cut as proposed will produce an insignificant benefit for all but a small minority.

Let’s forget about fairness for a moment:

From the strictest economic viewpoint, the 10% tax cut would fail to create the additional aggregate demand needed to stimulate the economy and I am presuming that that is the ultimate goal. Why would it not work? Because the immense majority of consumers would see their finances hardly changed by it – apparently Christie’s goal: The 10% cut is designed so that most people see almost nothing of it.

But even if we put that billion – following the democratic recipe – toward property tax relief, it amounts to approximately 2.2% of the total property tax paid by New Jersians – the equivalent of freezing property taxes for one year; again hardly worth to write home about.

Since the 2% cap is rather flexible, municipalities would find ways to make up for the one-year freeze. In fact, they would be forced to do so by their obligations. Postponed obligations accrue more debt. On the other side, Christie and Sweeney can talk all they want about merging services: It will not happen to the extent or with the speed needed.

The ultimate purpose of any fiscal measure should be to stimulate growth. Even measures of austerity should have the long term goal of stimulating growth. With growth come jobs, better wages, better infrastructure, more accessible education opportunities and wider horizons for our youth, higher standards of living, etc. I presume we all want our children to live better than we have. But everything that has been put on the table by both parties is insufficient: We have serious structural problems and among the main ones is the very expensive political class that permeates everything. We must address those structural problems with drastic reforms if we want to reverse an otherwise inexorable decline.