Tax Reform and Budget Solutions

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 Tax/Budget Principles

• Make New Jersey’s tax system

competitive
• End overreliance on property taxes
• Rein in public sector salary,
pension and benefit costs
• Reduce unfunded pension and
health care liabilities and long-term
debt
• Invest in job growth
• Fight for fair share of federal
revenue
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 A Tax System Out of Whack

$22.5 Billion
Sales Taxes
$8.1 Billion
Property
Taxes
Income
Taxes
$23.7 Billion
$11.7 Billion

Corporate Tax
$2.7 Billion

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Rebalancing the Tax System

Property Taxes Property Taxes

$24 Billion $20 Billion

Income Taxes
$11.1 Billion
Income Taxes
$11.7 Billion
Corporate Taxes
$2.0 Billion
Corporate Taxes
$2.7 Billion

Sales Taxes
Sales Taxes
$ 12 Billion
$ 8 Billion

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 Making NJ Competitive

• Property taxes in New Jersey become

competitive with neighboring states.
• Hard cap placed on school district,
municipal and county budgets and
employee contracts.
• Low and middle income tax rates remain
among lowest in the nation.
• Upper income tax rate cut from 10.75% to
8.97% -- rank drops from 3rd to 7th in nation.
• Corporate tax rate drops from 9.36% to
7% -- rank drops from 6th in the nation to 25th,
below NY, PA and other competitive states.
• Sales tax rate remains at 7% -- tied for 12th
in the nation (combined state/local and sales
taxes).
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Daggett Plan: Following the Money

$4 Billion Property Tax Cut

$620 Million Income Tax Cut

$750 Million Corporate Tax Cut

$130 Million Dedicated Funding for

Open Space, Tourism, Free Beaches

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 Sources and Uses

$1.6B Existing Property Tax Relief

$3.9B Broadening Sales Tax

$5.5B Total Sources

$(4.0)B Property Tax Cut

$(.62)B Income Tax Cut
$(.75)B Corporate Tax Cut

$(5.37)B Total Uses

$130m Net to be dedicated for open space,

tourism, free beaches
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 The Daggett Tax Cut

PROPERTY TAX INCOME TAX CORPORATE TAX

25%Property Top Bracket Corporate Tax

Tax Cut up to Cut from Rate Cut from
$2,500 for all 10.75% to 9.36% to 7%
Homeowners. 8.97%
All Seniors get
$2,500.
Broadened to Tax More
SALES TAX Services: Rate Stays at
7% with No Tax on
Necessities
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 Broaden Sales Tax Base

• Growing service sector now makes up

60% of economy, yet sales tax is primarily
levied on goods and has been shrinking as
a share of NJ tax base.
• Plan would extend sales tax to broad
array of household, personal and
professional services rendered to
individuals.
• This results in an additional $3.9 billion in
revenues
• Plan would continue to exempt food,
clothing, educational, medical, funeral and
business-to-business services.
• Sales tax rate of 7 percent still ranks 12th
in nation in state-local sales tax rate.
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 A Hammer to Cap Property Tax Growth

• Property taxes grew an average of 5.9%

from 1998 to 2008, more than twice the
2.8% average CPI increase.
• Plan limits annual growth in school
district, municipal and county budgets and
employee contracts to the CPI index.
• Any jurisdiction approving a budget or
employee contract exceeding the CPI
would forfeit property tax cut.
• Left unchanged, property taxes will rise
from $24 to $42.7 billion over the next
decade. Under the Daggett cut and cap,
property taxes would grow to just $27.7
billion, a savings of $15 billion.
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 Open Space, Tourism & Beaches

• Sales tax expansion includes a $205 million tax on

seasonal rentals.
• Only 19% of vacation rental taxes would be paid
by New Jersey residents.
• Dedicates $100 million annually to preserve open
space.
• Allocates an additional $20 million for tourism
promotion, tripling guaranteed funding to promote
NJ’s second-largest industry.
• Creates a $10 million fund to offset annual loss of
beach badge fees for any shore town or county
willing to make any beach free.
• Like existing hotel-motel tax, shore and ski towns
can levy 3% local option tax to cover cost of
tourism services or reduce property taxes.

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 The $8 Billion Budget Gap

Expiring Tax Revenue ($1.1B)

Property Tax Rebate ($1.6B)
Pension Contribution ($2.5B)
Federal Stimulus Dip ($1.6B)
Forecast Budget Growth,
Non Recurring Revenue ($2.0B)

Forecasted Revenue Growth $0.8B

TOTAL GAP ($8.0B)

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Note: Estimates by OLS
 Addressing the Gap

Expiring Tax Revenue ($1.1B) Addressed through

Property Tax Rebate ($1.6B) tax plan

Pension Contribution ($2.5B) Salary growth reduced

lowering liabilities
Federal Stimulus Dip ($1.6B)
Forecast Budget Growth,
Non Recurring Revenue ($2.0B) Freezing cost increases
through budget process
Forecasted Revenue Growth $0.8B

TOTAL GAP ($8.0B)

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Note: Estimates by OLS