Since taking office in 2010, governor Christie has approved $1.57 billion in state tax breaks for a number of New Jersey’s largest companies after they pledged to add jobs. Although that amounts to more than 50% of what the State Treasury would take in corporate taxes in a single year, New Jersey has received little return for its effort.
Corporate taxes amount to approximately $2.8 billion in New Jersey. They represent less than 10% of the state budget. Christie has surrendered about 25% of that income annually.
My proposal of phasing out most if not all corporate taxes would be much more effective since it would have the advantage of being perennial. A tax credit, even though it is a significant drain to the state, is a one time deal. Furthermore, the tax credits given to specific companies do not entice any newcomers. When we offer a tax-free environment to companies that do not operate in New Jersey, the State of New Jersey does not lose a dime and has a lot to gain if they move in.
But it has to be universal. Of course, it is a fiscal impossibility to do away with corporate taxes without dismantling part of the asphyxiating government structure we live under. Neither Christie nor the democrats can not do the latter. I can. No one owns me.
On Friday, the U.S. Labor Department released the latest update on job growth and the unemployment rate. New hires plummeted to 120,000 but unemployment rate fell to 8.2%. In February, the U.S. economy had added 227,000 jobs.
New Jersey, however, remains anchored at 9.0% unemployment. As I have said innumerable times, the problem is the lack of aggregate demand.
Itemizing the New Jersey tax credits we find: Panasonic received $102.4 million in tax credits to move its headquarters nine miles within New Jersey. Goya Foods picked up $81.9 million in credits to build offices and a warehouse in Jersey City, two miles from its current complex. Prudential Insurance obtained $250.8 million to move a few blocks to a new tower in Newark.
New Jersey lost more than 260,000 jobs in the recession. But the tax credit initiatives as carried out in New Jersey represent an inept way of promoting economic growth. The administration only reacts when a corporation threatens to leave the state. There is no proactive economic policy. The companies only received the tax breaks after they threatened to move to New York or elsewhere. When the promised jobs have not materialized, the Christie administration has merely reduced, not withdrawn, the subsidies.
My program on the other hand, would link the elimination of corporate taxes not to any number of new jobs. Instead, a law with a new minimum wage would be enforced. That minimum wage would be $15/hour with benefits or $18/hr without health benefits. These increases would exert an upward force on all wages in New Jersey. Economic activity would rebound.
But: “Christie has taken this to a whole different level; it’s become a feeding trough,” said Deborah Howlett, executive director of New Jersey Policy Perspectives, a liberal policy organization. “It seems ridiculous to steal jobs from one city in the state and move them to another city a couple miles away. There just doesn’t seem to be any benefit to taxpayers.”
Christie has used a new program, the Urban Transit Hub Tax Credit Program (UTH) for the subsidies. The program, which is intended to encourage development around nine cities, offers tax credits equal to 100 percent of some capital investments.
“This is another success story about one of our largest businesses choosing to stay in New Jersey, continue to grow and invest in our state and people,” Christie said in October. “This project directly benefits New Jerseyans by keeping over 800 jobs here, creating up to 200 new, permanent positions, and spurring private investment.”
Under the program, the Christie administration has granted more than $900 million in state tax credits over the next 10 years to 15 companies, including Panasonic, Goya, Prudential and Campbell’s Soup. The companies have promised to add 2,364 jobs, or $380,711 in tax credits per job, over the next decade.
The state approved up to $250 million in tax credits last year for Prudential, Newark’s most important corporate citizen, to build a new office tower. The company acknowledged that the jobs were not “at risk” of leaving the state and that renewing its leases at three buildings in the nearby Gateway complex were the “low-cost options by a wide margin when compared to the cost of new construction.” The $250.8 million in tax credits, however, made the office tower project possible. In return, Prudential claimed it would create 400 new jobs, including 100 coming from outside New Jersey. The other new jobs were based on the company’s past growth patterns, which presumably would occur at either location.
That is $250.8 million for 100 jobs. I can not imagine a more dismal return.
Christie approved a $42 million tax break for Campbell’s Soup to renovate its longtime headquarters in Camden and add new jobs. Campbell’s then announced in June that it would eliminate 130 jobs in Camden. The administration responded by reducing the subsidy to $34.2 million and warning Campbell’s that it could not use the tax credits until it restored the work force to the level before the job cuts and added five jobs a year for a decade. This is the clumsy approach to fomenting economic growth. It sounds almost Medieval.
Adding to the list: The state provided $261.4 million in tax incentives for the Revel casino in Atlantic City, where the gambling industry’s revenues have fallen sharply. It also plans to give up to $650 million in public financing for a twice-failed entertainment and retail complex in the Meadowlands – the infamous Xanadu.
UTH, which has expanded companies’ chances of obtaining subsidies, is basically a good concept very poorly implemented: We want to redevelop our cities, steering corporate investment toward them, putting the existing mass transit services to optimal use. UTH is a bipartisan initiative that has been revised three times since 2008 to make it easier for companies to qualify. But it has to be molded to fit into the tax and economic reforms that I propose, which by the way, can make UTH truly productive. UTH is more or less in line with the New Jersey State Master Plan and Smart Growth. All these ideas are good but must be executed effectively:
The Christie administration is simply not capable enough. This is no way of competing.
But Caren S. Franzini, chief executive of the New Jersey Economic Development Authority (a political subdivision of the State of New Jersey that under my administration would probably be dismantled) said the tax incentives offered by Mr. Christie had been highly successful. “It’s very much worth it,” Ms. Franzini said. “We’re sharing with the companies a percentage of new revenues. But we’re always getting more than we give out. There will be jobs, but there will also be more tax ratables for those communities and more spinoffs.”
Bombast is never lacking in the Christie administration however substance is in short supply: New Jersey has recovered only 20 percent, or 51,500, of the 261,000 jobs lost during the recession, compared with 80 percent in New York City. Numbers speak louder than words.
Two quotes in this article appeared in the NYT. Economic data is from the NYT, CNN, and Bloomberg.