Nearly 25% of N.J. Residents Lived in Poverty in 2010

This report is more realistic than the federal standard for measuring poverty – which I believe is outright ridiculous no matter where you live in the U.S. – N.J. defines being poor as making less than $36,620 for a family of three — twice the federal poverty rate. New Jersey has a higher cost of living than most other states particularly because our exorbitant property taxes, which also reflect on rental costs.

Nearly a quarter of N.J. residents lived in poverty in 2010, study shows | NJ.com.

There are a number of factors which have contributed to this imbalance in one of the richest states in the nation. But all the factors, fundamentally, find their roots in the complicity of the two dominant political parties in holding wages stagnant and fleecing the public. In other words: A lot of people, even those not comprised in the low 25%, are making too little money and paying too much to the political octopus that rules New Jersey.

Note that the 2000 or so government entities of New Jersey devour more than 10% of the state GDP of about $650 billion. And we do not even have defense expending!

This reality has had two major consequences after two decades or so:

1. A lot of people borrowed beyond their means to maintain the illusion of prosperity.

2. Disposable income plummeted and with it went aggregate demand, thus pushing the economy into an endless period of anemic performance.

Since government – and all its local subdivisions –  also borrowed left and right, New Jersey has entered a period when the high degree of leverage has the effect of quasi paralyzing both the public and private sectors. There are budgetary problems and people are taxed out. Even if millionaires are taxed, as the democrats call for, that additional revenue would amount to considerably less than $1 billion.

The millionaire surtax has become more like a political football to keep the masses distracted and pretend that there is a major difference between the two dominant political parties. It is theatre.

The democrat-proposed increase in the minimum wage – possibly to blunt my message because I am the first who has mentioned minimum wage in the last decade – would be the first in I-don’t-know-how-many-years and it is clearly insufficient to have any economic impact.

Both parties have proposed tax reductions: Christie his ubiquitous income tax across-the-board cut, which of course favors his political base, and the democrats their property tax cut. Both plans are better than nothing; the democrat plan slightly better. But the grand problem is that the state is not in a sound enough fiscal position to – responsibly – adopt either plan.

If a tax cut – any of them – is implemented, it will amount to a tax deferment rather than a tax cut. When such tax becomes due, 10, 20 years from now, it will also come with accrued interest so we will end paying more for this meaningless relief today.

While both political parties endeavor in buttering up the voters in back-to-back election years, I am presenting  – in this website – my program of reforms, which I believe are the minimum essential to save New Jersey.

Citizens of New Jersey beware: Our problems are complex. Any politician that presents a simple solution to a complex problem is eminently dishonest.

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Winners and Losers with Tax/Economic Reforms I Propose

Winners:

a) Anybody who works for less than $15/hr with benefits or $18/hr without benefits. Their gains are dampened somewhat by the fact that state income tax will be higher. On the other hand, they will have no sales tax and if they are homeowners they will have no property tax. If  they are renters, a payroll credit softens the impact of the higher income tax.

b) Anybody who works for a pay rate or salary above those described in (a) because the minimum wage increase will place an upward pressure on all wages. Inflation of consumer goods is checked by neighboring states as consumers would flock to PA and NY if NJ merchants increased their prices significantly.

c) Homeowners who are New Jersey taxpayers. They will only face the general income tax which is proportional to income. Seniors in particular are among the principal beneficiaries. In cases where a NJ resident works outside New Jersey and does not pay NJ income tax, a prorated portion of the property tax remains in effect.

d) All corporations, regardless of type and size, and professional employers who have employees in the State of New Jersey will not only enjoy zero tax on their earnings but they will pay no property taxes in their sites. Some rural areas of the state may be excluded from this policy as a conservation barrier. Same applies to limited partnerships and limited liability companies (which could be C or S corporations as well.)

e) Farmers and landowners. Absence  of property tax will ease the burden of holding on to large tracks of land.

f) Merchants of all types. Lack of a sales tax and higher wages should increase demand, drawing consumers even from outside New Jersey if New Jersey merchants maintain level prices.

g) Investors, regardless of income, who invest in New Jersey or in corporations which operate in New Jersey would see zero tax rate on their dividend and capital gains. Dividend and capital gains from New Jersey receive “Most Favored Nation” treatment.

About Even

h) People who rent. Generally speaking, the reforms are inclined to stimulate home-ownership. Income tax increase is almost balanced out by automatic payroll deduction (which is paid by rental property taxes) and elimination of sales tax.

i) Owners of residential rental property. Until we design a better method, property taxes will continue to be in effect.

Losers:

j) Investors whose dividend and capital gains are earned in operations not present in New Jersey. By far the biggest losers here although retirement accounts are exempt and there is a threshold (to be determined) below which such dividend is treated as regular income.

k) Land/homeowners who are not New Jersey residents and taxpayers. Their property tax rates are very likely to increase.

l) Career politicians. There will be many less public positions available for them once they get out of political office.

Note that there may be exist niches not included in the compilation above. For instance, some workers of current local boards of education could be displaced as result of consolidation although the number could be much smaller than expected. Another example is commercial rental property: If it is occupied, there will be no property taxes on it but if it is vacant, property taxes will apply.

N.J. Property Taxes Are the Worst Enemy of Senior Citizens

NJ Spotlight | Assembly Bill Would Help Neighbors Grow Old Together.

The bill, although not bad in concept, is a miserable band-aid on the gaping wound that property taxes open on family budgets. And among the most vulnerable and often financially stressed households, those led by seniors are at the forefront.

The reality is that seniors in New Jersey are often forced from their homes by property taxes that surpass – and outlive – their mortgages. Unlike mortgages, which eventually are paid off, property taxes never go away and continue to increase year after year. If we add the actual direct increase in property taxes during the first two years of the Christie administration and the indirect increases caused by the elimination of the State property tax rebates, we arrive at the massive increase of 20% in 2 years. That is scandalous and it has had the effect of pushing numerous seniors out of their homes, or at the very least under the poverty line – in terms of disposable income.

Then governor Christie has the nerve to climb on a podium and claim that he has balanced two consecutive budgets without increasing taxes!

The most effective way of helping all New Jersey seniors to remain in their homes is by abolishing property taxes for the primary residence of all New Jersey taxpayers. I will be the only gubernatorial candidate who will propose such a reform of our tax system in 2013. The elimination of property taxes for most will also have the desirable effect of raising property values and increasing demand for homes. Property taxes are suffocating our economy,

Simultaneously, I offer a well thought and balanced alternative to fund education and municipal governments. Local services would not be touched. County governments would be abolished although many of their departments and their schools would remain. County governments account for over 20% of the total property tax levy in New Jersey. A large portion of that money goes toward consulting and brokerage firms which in turn are heavy contributors to election campaigns. That is one of the pillars of political control.

These changes I propose would involve one or more amendments to the State Constitution and would undoubtedly meet strong resistance in the New Jersey Legislature.

Tax Proposal Aims to Reward Domestic Manufacturers

Tax Break for Manufacturers Offset Elsewhere – NYTimes.com.

This mirrors a portion of my tax reform plan for New Jersey: Shifting tax liability from in-state employers and investors and increasing taxes on dividend and capital gains that do not originate in the state nor are earned from in-state activity.

Missing from the Obama plan is any measure to increase aggregate demand. Without an increase in demand, employers will not have much reason to expand domestically even if the tax code favors such expansion. Only greater demand leads to greater supply and consequently, more employment. The only exception to this rule, and it is a temporary exception, is when supply has been disrupted by an extraordinary event and shortages have disrupted the economic balance. In such an event, demand is artificially high. But that is not the case here. What applies here is that aggregate demand is directly proportional to the standards of living of the majority. In other words, most people have to make more  money.

Liquidity achieved through leverage fueled an artificial expansion that has brought us to the current crisis. That is why monetary easing has not yielded the fruits that the Federal Reserve anticipated. The liquidity has to be genuine. People have to truly own the disposable cash.

But I have come to believe that both parties in power are rather unimaginative when it comes to policy or they are hindered by their principal priority which is to stay in power. Party before nation seems to be the slogan: Or party before New Jersey.

“It is time to stop rewarding businesses that ship jobs overseas, and start rewarding companies that create jobs right here in America,” Mr. Obama said in a statementannouncing the plan.

Geez, it only took 30 years. And Obama’s plan may not be bold enough.

Of course governor Christie is terminally deaf to this type of call. He is marching blindly through the already beaten path of an ineffectual tax cut in the face of a dismal fiscal picture.

There is little chance that the Obama proposal will see life this year, with a congress divided and the lurking election. However, at least it signals that the administration is focusing on what I call “Geographic Taxation” – meaning, where you put you money makes a difference at tax time.

Neither the White House nor the republicans, who quickly responded to the plan, offered many details. The republicans responded that the plan should not be a campaign instrument but a mechanism to stimulate growth and the creation of jobs. There is no shortage of people figuring out what the problems are. In fact, I find no less than 100 articles every day describing the difficulties that America faces and offering general descriptions of what must be done.

But a recovery plan that does not describe the smallest nut and bolt of its mechanism, detailing the how’s, when’s, and where’s, does not deserve the name of “plan”.

I tend to believe that the recovery of New Jersey, or America for that matter, will involve either a reform of great complexity or a very long time of stagnation, similar to Japan’s lost decade. In our case it may be much longer than a decade because we lack some elements of the Japanese economy – theirs is more exports-oriented and most of the Japanese creditors are themselves Japanese. Most of the interest that the Japanese government pays for its sovereign debt stays in Japan. That is not the U.S. case and New Jersey has this bloated government whose political class devours everything; where the Japanese have ethics, we exhibit greed and selfishness. With the two political parties hugging power and petrified at the prospect of far-reaching reforms, chances are that is it the long tern sluggishness which will become the avenue of our future.

Proposed Constitutional Convention is a Poison Pill for New Jersey

Christie opposes constitutional convention on taxes, schools suggested by Norcross | MyCentralJersey.com | MyCentralJersey.com.

The proposal came out of the blue and it was made by George Norcross, the notorious democratic political boss of southern New Jersey who has been behind some other infamous ideas, such as restricting public employees from seeking medical care outside New Jersey (that was during in the original N.J. Benefits and Healthcare Reform of 2011 but was dumped at the end after mass reaction against it). He also gets credit for being behind the proposed Rowan-Rutgers merger; a move vigorously opposed by everybody at Rutgers but that has been embraced by governor Christie. And now he comes up with the constitutional convention proposal; an idea that the governor has not endorsed; not yet.

Why is the idea of holding a constitutional convention (last was in 1947) a lousy one, for New Jersey?

First: It is a very time consuming and a very costly process, and the bulk of the money comes from the tax-payers – already strapped for cash. It may take as long as a decade to see the end of the convention process and I do not believe New Jersey can afford to wait so long to see drastic change. The reforms that the state needs, in taxation and government structure (those two by default would cover education which should be funded from the general income tax only) can be handled perfectly with two, three constitutional amendments at the most.

Second: What is the difference between a convention and an amendment? It is the difference between open heart and arthroscopic knee surgeries; like day and night, like the Atlantic Ocean and an Olympic swimming pool. In a convention, the entire constitution is opened for review and change. In an amendment, it is just an specific section. The latter is what New Jersey needs. A convention, at this stage, is not in the interest of New Jersey. The convention would only serve to open opportunities to elements in power seeking more power and control in order to satisfy their greed at the expense of the majority of citizens.

Third: Imagine the swarm of perennial lobbyists around the convention delegates. And the worst part is that many will be paid with public funds because every municipality, county, and independent public agency will have somebody there, trying to influence the text of our supreme set of laws. Every contractor, every corporation looking to do business with the public sector, will be there too. The only ones who will have no one there are the people of New Jersey who will be busy at home or at work trying to make end meet. They can not afford a lobbyist; many barely can afford to live.

Fourth: There is no guarantee whatsoever that the finished product of this convention will improve life for the people of New Jersey. In fact, my expectation would be in the negative area. The current system and the two dominant parties do not have my vote of confidence or trust.

Then there is absolutely no need for a constitutional convention. There are certain things that must be amended to turn the state around. I will present the road-map for the transformation of the state tax system and its political structure prior to the election in 2013. However I can advance the following: If I am elected governor of New Jersey in November 2013 the first step I will propose to the Legislature is to transfer all the taxation authority of counties and municipalities to the State. That calls for a constitutional amendment. If the Legislature passes the law and the people approve the referendum, nothing will change for the moment but we will move to the next step which is introducing the laws abolishing the county governments, consolidating boards of education, and the police. If that passes too, then we must develop the new income tax system. The latter only requires legislative approval.

It is only then, when we have all the legal elements in place, when the logistics of the transformation has been developed, that in one single day we will abolish property and sales taxes, the new income tax system takes over, disband the above mentioned layers of government. Many or most of the employees of those units of government will automatically become state employees and if union, their contracts will be recognized by the State. The police remain at their stations, the counties DPW workers remain in their posts, the teachers in their classrooms. However the positive effects of the re-structuring will be immense.

As complicated as all this may sound, it is nothing compared to the chaos that a constitutional convention would create. And my measures will leads to strong economic growth. A convention on the other hand will initiate a period of uncertainty in New Jersey. Businesses do not like uncertainty.

The China Juggernaut: We Must Outdo It to Revitalize New Jersey

China City Woos Apple Supplier With Workers, Low Wages – Bloomberg.

The article quoted is a must-read.

Getting the manufacturing facilities of a corporation such as Apple or the one mentioned in this article, Foxconn Technology Group, could turn around the fortunes of New Jersey. The question is how to attract them here.

Notice that Foxconn is not alone in its eternal quest for margins. Intel, Apple, Ford, GM, etc are all already in China, but even the relatively low wages of the China coast seem too high for them and they are now contemplating relocating to Vietnam, or Bangladesh. What the the city of Zhengzhou is trying to do is what we must do here in New Jersey.

But of course we can not bring down wages here to the levels of hinterland China – or Vietnam and Bangladesh for than matter. So we must be more creative in our approach. That is why I have presented in my political/economical/taxation plans what may seem an extraordinary overhaul of everything at first impression but happens to be absolutely indispensable unless we accept descending to Third World standards of living.

The fact is we must overhaul our tax and political systems if we want to turn the tide to our favor. We can not count on the federal government so we must do our own reform here in New Jersey. Do not count on the two dominant political parties either. They are the ones that have created this mess and they live well regardless of what happens around them.

It is not only about attracting new corporations; it is also about retaining those we still have here.

Debt crisis: Gang of Six plan stinks

http://money.cnn.com/2011/07/19/news/economy/gang_of_six_budget/index.htm?hpt=hp_t1

http://www.bloomberg.com/news/2011-07-19/u-s-house-set-to-pass-doomed-spending-cut-bill-with-no-debt-deal-imminent.html

As the details of the proposal filter out it is apparent that it is simply a rehashed version of earlier republican demands and most of the changes in the tax code are middle class-adverse. The tax exemptions to be eliminated are among the portions of the tax code which benefit the middle class the most. President Obama already said that he likes the plan although he does not know the details. Is it that all the arguing of the last few days was staged and the final act of the surrender is coming up?

Tax rates: Reduced from 6 to 3. Lowest tax rate remains unchanged: From 10% now it goes to between 8% and 12% in the plan. By comparison, the higher rate will drop from 35% now to between 23% and 29%.

It would also call for a broad overhaul of deductions that would raise $1 trillion by limiting breaks for health, charitable giving, home-ownership, and retirement while lowering individual and corporate tax rates. It would phase out the Alternative Minimum Tax, a system designed to prevent higher- earners from avoiding taxes.

The excuse to eliminate the Alternative Minimum Tax — often called the “wealth” tax — is that it threatens to hit the middle class in increasing numbers every year because of how it was set up.

I would say the solution is to fix the clause; not to scrap it altogether. Without the AMT, creative wealthy individuals will not pay taxes at all while the real middle class is screwed.

It is not clear at this moment how social security and medicare are affected in the plan. But it is clear that they will be.

There is no question that the middle class will be affected in any debt reduction plan. The question is whether the middle class will be the only class affected.