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Dear Chairwoman Pintor Marin, Vice Chairman Burzichelli, and Members of the Committee:
As one of the largest grassroots organizations in the nation, Americans for Prosperity (AFP) is dedicated to educating citizens on how free market policies lead to more New Jersey residents living their version of the American dream.
Through broad-based grassroots outreach, AFP is driving long-term solutions to the country’s biggest problems. AFP activists engage friends and neighbors on key issues and encourage them to take an active role in building a culture of mutual benefit, where people succeed by helping one another. AFP recruits and unites activists in 35 states behind a common goal of advancing policies that will help people improve their lives.
AFP remains committed to standing up for taxpayers and against government proposals that overspend and overtax. I encourage you to adopt a budget that will move away from the failed status quo and begin to set New Jersey on the right track. Specifically, AFP would like to see this committee and this legislature use the budget to lower the overall tax burden on families and businesses, show fiscal responsibility through reasonable spending policies, and begin to address the state’s debt crisis. Only then can we hope to return to New Jersey to a level of competitiveness long since forgotten.
Regrettably, Governor Murphy’s proposed budget for Fiscal Year 2020 fails to achieve this vision and continues a legacy of government mismanagement and waste at the expense of the taxpayer. The $38.6 billion proposal increases government spending over the last fiscal year by more than $1 billion, and raises our state’s already high taxes even further to pay for it. Specifically, the Governor is calling for a millionaire’s tax—a rate of up to 10.75 percent on those making over $1 million—in addition to a “corporate responsibility fee” of $150 per worker imposed on businesses with more than 50 employees who use Medicaid for health care.
What does Governor Murphy plan on spending this new revenue on? The increased funding includes bloated public transit programs and added subsidies of selective school districts—$100 million and $206 million plus-ups, respectively. Instead of focusing on reforms that eliminate government waste, allow for innovation, save tax dollars, and provide relief to all hardworking New Jersey taxpayers, this budget seeks to simply throw more money into flawed systems.
Meanwhile, our state continues to be one of the most uncompetitive in the country. According to the Tax Foundation, New Jersey has the third-worst combined state and local tax burden in the country and is ranked 50 in state business tax climate. Both New Jersey’s top individual and corporate income tax rates are among the five worst in the country. New Jersey is number one for the highest effective property tax rate in the country.
If New Jersey is to become competitive, we must begin by cutting taxes. It is that simple. It can be done if this legislature is willing to get its priorities in order. General revenues have grown at faster rates than has the consumer price index in recent years—amounting to billions of dollars taken out of the private sector and put into the government that has a monopoly on the majority of what it does. There is no reason spending should grow faster than population, plus inflation, going forward.
A millionaire’s tax would only exacerbate the state’s already out-of-control tax and spend habit. An ideal tax structure is levied on a broad base with low rates, and is simple, stable, transparent, and neutral. The millionaire’s tax violates these principles, while doing nothing to solve the state’s current problems with complexity and lack of transparency. It makes the state budget even more reliant on high earners, creating a more volatile source of revenue. The tax also has a disruptive effect on economic growth by distorting incentives for higher earners and inducing even more outmigration.
Under the millionaire’s tax, New Jersey would fall even further behind its neighbors. Overburdened citizens could look to Pennsylvania with its flat rate of 3.07 percent or to others nearby: Rhode Island and Connecticut have top rates of 5.99 and 6.99 percent, respectively. New Jersey is already seeing large outflows of income-earning power to states like Florida, Pennsylvania, North Carolina, and Texas.
Additionally, this legislature needs to start seriously addressing our state’s debt crisis. The most important aspect of government spending for New Jersey to reform is pensions. The state currently faces an astounding $220 billion in combined pension and health benefit liabilities (State Budget Solutions) which is four times the size of the state’s annual budget and more than three times the size of the state’s bonded debt. That debt represents $26,000 for every one of New Jersey’s residents, and it will continue to grow every year. According to the Pew Charitable Trusts, without changes to the pension and benefit structure, the cost of pensions and benefits will rise by $4.1 billion over the next four years and consume 26 percent of the state budget.
The reason for this problem is two-fold: New Jersey assumes a return on investment of 8.25 percent, significantly higher than the historical average of 7.25 percent. Moreover, the benefits promised to government employees are woefully out of line with those of the private sector workers who are funding them. The state pays for about 95 percent of essential benefits.
The New Jersey pension system faces a looming fiscal calamity that is quickly crowding out funding for other essential services. Absent reform, we will be faced with massive tax hikes, budget cuts, or both.
Ideally, the state should move from a defined benefit plan – offered by less than one-fifth of the private sector – to a defined contribution plan (or hybrid plan), which is offered by over 60 percent of private employers. This would cut costs and increase flexibility, while still providing financial security for public employees.
New Jersey faces tremendous challenges this year and beyond. The status quo is simply unsustainable, without change we will continue to tax and spend ourselves into oblivion while more and more people pack up and move, leaving a smaller tax base to meet a growing burden. However, we can change direction starting with this year’s budget. Tax and spending cuts, along with serious proposals around pension reform, will help get our state back on the right track today for a brighter future tomorrow. Only then can New Jersey start to create real, competitive opportunity. It is time for a new approach and a new future for New Jersey.
Thank you in advance for your consideration. I look forward to working with this committee on enacting these and other bold reforms for New Jersey.
Erica L. Jedynak
New Jersey State Director
Americans for Prosperity
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