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January 25 2018

New Jersey’s Tired Tax Tricks

via City Journal
by Naomi Schaefer Riley

“New Jersey needs tax reform to guarantee relief from soaring taxes.” That was the plea Brendan Byrne, a Democratic former governor of the Garden State, made 43 years ago to a group of mayors. Byrne, who died on January 4 at 93, has been widely mourned as a man who could work across the aisle to get things done. A prosecutor and World War II bomber-navigator, Byrne will be remembered by some for his life of public service, but for many New Jersey residents his legacy is evident whenever they look at their tax bills.

In 1975, with the state facing a budget shortfall, Byrne told mayors that the state would need a “large revenue package” to close a looming $413 million budget gap and raise the $300 million required to meet a state Supreme Court order for refinancing New Jersey’s public schools. The heart of the package would be a new statewide income tax, which went into permanent effect in 1977. Byrne promised that the additional money would help relieve the high property-tax burden on New Jersey’s citizens and reduce the disparity between rich and poor school districts.

Four decades later, the plan has failed on both counts. New Jersey’s property taxes have continued to climb at alarming rates, and the gap in quality between rich and poor school districts is, if anything, worse.

Two useful lessons emerge from this experiment. First, politicians and special interests don’t see new streams of tax revenue as a means to replace or eliminate an existing stream, but rather as a way of adding to the public coffers. (For those who entertain fantasies of a value-added tax replacing the federal income tax, take heed.) New Jersey’s income tax started with a top rate of about 2.5 percent; it’s now around 9 percent. Even with such an increase, the income tax has never had much of an effect on the property-tax burden. The Census Bureau reports that the average property-tax bill in New Jersey was $4,820 in 1992; by 2014 (the most recent year for which data are available), it had grown to $12,960, among the highest in the nation.

That tripling in property-tax revenue outpaced both inflation and economic growth in New Jersey; the consumer price index rose only 70 percent over the same period. Overall revenue was dragged upward by ballooning education spending, which went from $8,567 per pupil in 1992 to $17,907 in 2014. Indeed, the growth lines for those two items are almost parallel. Perhaps the proponents of the income tax would say that property taxes would have been even higher if the income tax had not been there to offset some of the cost of educating the state’s children. But it’s hard to imagine that politicians could have bled New Jersey citizens by much more than they did. According to a USA Today analysis of IRS data, New Jersey saw a net decrease of 33,700 people and $2.6 billion in taxable income between 2014 and 2015.

The second lesson is that education spending is not correlated with educational quality. When politicians demand more money for education funding—usually at the behest of teachers’ unions—schools are not likely to improve. Take Newark, which spent more than $22,000 per pupil in 2016. For all this largesse, the percentage of third-graders who met or exceeded expectations on state exams that year was less than 28 percent in math and 24 percent in reading. In nearby Maplewood, meanwhile, where the school district spends only $18,351 per pupil, more than 70 percent of third-graders are meeting or exceeding expectations in reading and more than 60 percent in math.

Poverty is the often-repeated explanation for this disparity in performance. But after decades of spending more on schools in poorer districts without seeing results in educational performance—as well as the evidence from high-performing charter schools and voucher programs that it is possible to educate students well for less than the cost of a high-end prep school—maybe we should see the poverty excuse for what it is: a ploy by teachers’ unions to get more money out of the state budget.

The New Jersey Education Association was instrumental in the passage of the income tax. The union’s website offered a remembrance of Byrne after his death, calling him a man who “risked his political career to ensure that the state could begin to live up to its constitutional obligation to all students.” But when it comes to increasing revenue, the union’s spending demands don’t give the state’s politicians much choice.

In a recent op-ed for the Asbury Park Press, a former director of the nonprofit Better Education for NJ Kids notes some of the ways in which the NJEA has gotten the upper hand: “As a result of laws the NJEA helped to pass, teachers are basically forced to join the union (non-union teachers have to pay up to 85 percent of their NJEA dues as ‘agency fees’). Additionally, teacher dues are automatically withheld from their paychecks by the personnel in the local school districts and sent to the union—at taxpayers’ expense. The NJEA is thus freed from the work and expense of recruiting members or collecting dues—giving it more time and money to devote to politics.”

In fact, the union spends about $43 million a year lobbying state and local politicians to defend their expensive benefit packages—one reason that nothing has been done to address New Jersey’s $253 billion in unfunded pension and benefit liabilities. It’s hard to see how the state will dig its way out. But don’t be surprised if, a half-century after Brendan Byrne’s bright idea, someone suggests that a new tax is the answer.

Independent Women’s Forum’s mission is to improve the lives of Americans by increasing the number of women who value free markets and personal liberty. Sister organization of Independent Women’s Voice.
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