Taxable Talk

New Jersey has been in my view the poster child of what happens when liberal tax and spend runs amuck. Eventually the money runs out in a downturn, and that appears to be happening in the Garden State.

Governor Jon Corzine proposed a budget that he described as "...cold turkey therapy for our troubled spending addiction." The new budget is $33 billion, a $3.2 billion cut from the current year. Three departments will be permanently eliminated. Property tax rebates will be capped based on income and reduced for those who rent. No tax increase was proposed.

However, remember that Governor Corzine also proposed a huge fee increase last week—50% increase in the tolls on New Jersey's toll roads. But those aren't taxes....

In any case, residents of other states will soon be seeing similar stark reality budgets. Most Americans consider themselves overtaxed, and come this Fall there will likely be many government workers looking for employment elsewhere.


News Story: North Jersey.com

States are having tax troubles, and New Jersey is one of those. The Tax Foundation has a great story about how a South Carolina company was forced to pay off New Jersey in order to get a truck released from a weigh station from a "jeopardy assessment." States are trying to make anything appear as if it creates nexus.

Meanwhile, New Jersey has budget problems. Big problems. As the Wall Street Journal reports, "In 1990 the state was $3 billion in debt. Borrowing has since grown at a compound annual rate of about 13%, and now the state is $32 billion in the red. Throw in unfunded pensions and health benefits for retirees, and that number swells to $113 billion, or $3,400 for every man, woman and child in the state. That's three times per capita higher than the national average, making New Jersey the nation's fourth-most indebted state."

Governor Jon Corzine (D) proposes huge toll increases (50% a year in 2010, 2014, 2018, and 2022) but legislators aren't thrilled with the idea. Perhaps the idea of limited government might take hold in the swamplands. Where are the Sopranos when you need them?

Right after Wesley Snipes found out that he'll be sentenced on April 24th, news came out that Wesley Snipes owes $70,000 in back property taxes for his home in Alpine, New Jersey (in suburban Bergen County). The home is in the name of his production company (Kymberlyte Production Services); Snipes sold it to them for $5.6 million in 2002.

The back property tax lien has been sold to Crusader Lien Services. I'd expect this problem to be taken care of, unless Mr. Snipes now also believes that property taxes are illegal....

Hat Tip: Don't Mess With Taxes

Like the raindrops that have been falling relentlessly here in Orange County, so also have been the charges of corruption in New Jersey. The Mayor of Guttenberg, David Delle Donna, and his wife, Anna, have been indicted on charges of tax fraud.

The couple were already facing charges of mail fraud and extortion. They are alleged to have accepted bribes to pay for Mrs. Delle Donna's cosmetic surgery. Federal authorities also allege that they accepted bribes in the form of gambling trips to Atlantic City, liquor, and a dog...a dog that cost more than $1,000.

Mr. Delle Donna won't be stepping down voluntarily from his mayoral position. The couple's attorney says that, "They look forward to their vindication in the court of law." If they're not vindicated they may be looking at an extensive stay at ClubFed; if convicted on all counts they face more than 20 years and significant fines.

California is not the only state with a budget crisis. The swamplands, aka New Jersey, face a projected $3 billion deficit for the next fiscal year according to this story.

Governor Jim Corzine (D) has asked his administration to find $3 billion to cut. Interestingly, New Jersey instituted one of the largest state tax increases ever in 2006. New Jersey is considered by the Tax Foundation to have the third worst tax climate for business (even surpassing California).

Governor Corzine has complained about debt (presumably bond interest) that costs New Jersey about $3 billion annually. But who has proposed that debt, and signed the laws allowing that debt to be borrowed? New Jersey's legislature is controlled by Democrats, and its governor is a Democrat.

This summer is going to be very interesting for state budgets throughout the United States. Special interest groups will say, 'Cut them, not us.' The problem is that today almost everyone considers themselves a special interest group. Will governors actually cut programs? Will they increase taxes? Or will they try to balance their budgets with smoke and mirrors?

If you're a New Jersey resident, make your views known with your local representatives. It's an election year, and they ought to listen.

As to what will happen, given New Jersey's past I suspect smoke and mirrors will win out.

It happens every year. No, I'm not talking about school starting (here in Irvine, today is the first day of school), or the leaves changing colors. I'm talking about the corruption arrests in New Jersey.

Various elected officials in New Jersey are now finding themselves under arrest after the FBI set up a sham company in a corruption sting. Eleven individuals were arrested; these include the Mayor of Passaic, Samuel Rivera; Assemblyman Mims Hackett, Jr (who is also Mayor of Orange, NJ); and Assemblyman Alfred Steele, who doubles as the Passaic County Undersheriff. From published reports, it appears that all 11 who were arrested are Democrats.

The defendants are accused of asking for bribes of between $1500 and $17,500. The probe stemmed from last year's corruption scandal in the Pleasantville, NJ school district.

Business as usual continues in New Jersey...

News Stories: New York Times, NorthJersey.com

If you're going to submit phony tax returns, it's a good idea to vary the names you use. Even poorly run tax agencies might catch on if they receive several hundred refund checks from the same address.

That bring us to the present, in the swamplands (aka New Jersey). Three individuals were arrested today for allegedly committing the largest tax fraud in the state's history. The three defendants cashed $826,974 in refund checks, having submitted 540 allegedly fraudulent tax returns. New Jersey officials were able to stop payment on over $1,000,000 in other checks.

What made New Jersey officials suspicious? This news story indicates that the defendants used similar names and employers and common addresses. When arrested, the three defendants were found with $200,000 in cash, blank social security cards, and tax forms (including W-2 forms).

As I mentioned previously, New Jersey increased its sales tax earlier this year. The Garden State also expanded what is covered by sales tax. Tattoos, massages, limousines, and data processing services are just some of the itmes that the state will now get a cut of, as of October 2nd. And ITunes downloads.

Yes, online music downloads are taxable in the swamplands. So if you want the latest song from Disturbed (my writing partner's favorite band) or the Red Hot Chili Peppers, Apple will be collecting sales tax. All to balance a budget by not cutting spending.

News Story: cnet

I almost labeled this post, "The Shock! The Horror!" Yes, another New Jersey corruption arrest. But my sarcasm quotient is slim when I'm low on sleep (I'm just back from Dallas), and I discover that Jack Westlake, a partner of John Lynch has also pleaded guilty to tax evasion. Mr. Westlake, 76, admitted that he didn't pay tax on $350,000 in taxes in 1999.

Over the weekend there were several stories about tax scofflaws. They fought the law and the law won.

First, a tax preparer in Georgia filed returns electronically. There's no problem with that. However, she filed returns for people who had not hired her to prepare their returns, using numbers made out of thin air (she also filed returns for people who gave her information, but used incorrect information). Amazingly enough, these lucky taxpayers got refunds, deposited into bank accounts of friends of the tax preparer (or the refunds were subsequently turned over to the preparer). The preparer, Lisa Lyle, has pleaded guilty to ten counts of tax fraud and will be sentenced on November 30th according to this article.

Meanwhile, in Shelby County, Michigan (suburban Detroit), Kenneth Heath was convicted of four counts of tax evasion and one count of passing a phony document. Mr. Heath believes in the views of convicted tax protestor Irwin Schiff, and didn't pay federal taxes between 1999 and 2002. That was strike one. Strike two was sending the IRS a "Registered Bill of Exchange." But there's no such thing as a Registered Bill of Exchange. Heath, 69, who faces up to 30 years in prison will be sentenced in December according to this story.

From Utah comes the story of a couple that believed in philanthropy. Both individually and through their business, they gave millions of dollars for the handicapped, an olympic center, and other charitable ventures. They also believed that giving starts at home: they were convicted of tax evasion. They didn't report overseas income of $4 million to their business. The couple, now divorced, will each spend over two years in jail and pay fines of $60,000 and $75,000. They also must pay the $14,000 cost of their jury trial and pay the back taxes of nearly $300,000 according to this story.

Finally, we have two stories from the swamplands (New Jersey). First, a bar owner harbored illegal aliens and was involved in an illegal alien smuggling ring. He forced the aliens to work off their debts in his bar. And he also didn't pay taxes on $750,000 of income from his bar. In the second story, the former president of the State Senate in New Jersey pleaded guilty to fraud and tax charges. John Lynch, who used to be involved in New Jersey's "Democratic Machine," admitted accepting a payment from a company that was attempting to build a park. Besides accepting the $25,000 payment, he failed to declare $150,000 in income. Lynch faces up to ten years in prison and a fine of up to $500,000.

All-in-all, it was a weekend to forgot for these scofflaws.

With the college football season beginning this weekend, and with pro football starting just one week later, it's time to root for your favorite team(s). Residents of New Jersey have gotten a head start—the National Conference of State Legislators has found that New Jersey's budget increased the most of any state!

New Jersey's budget increased by $1.9 billion, a five percent increase. New Jersey is now number one in sales tax (tied with three other states), number one in cigarette tax, and number one in property tax. What a trifecta!

On the other hand, some states actually decreased taxes this year: Arizona, Nebraska, Oklahoma, Utah, and Wyoming.

New Jersey, of course, suffered through the budget shutdown crisis in July, and the Garden State's new $30.8 billion budget increased sales tax from 6% to 7%. In an article in the Newark Star-Ledger, New Jersey Senate Minority Leader Leonard Lance is quoted as saying, "Businesses are fleeing New Jersey as well as residents, and it's very discouraging."

There was one bit of good news in the article. New Jersey's gasoline tax (14.5 cents/gallon) is the third lowest in the U.S. Unfortunately, New Jersey has the second worst tax climate for business (according to the Tax Foundation), and until that problem is corrected the Garden State is caught in a perpetual slide.

New Jersey legislators and Governor Jon Corzine agreed on a budget deal today. The deal includes the sales tax increase from 6% to 7%, but with half the proceeds of the increase being used to reduce property taxes this year and all of the proceeds being used to reduce property taxes next year. Of course, what the legislature grants they can take away, so it will be interesting to see what happens in 2007. And in the election this fall.

It is expected that casinos will reopen either tomorrow or Saturday. The shutdown has already cost New Jersey coffers an estimated $2.6 million just from lost casino tax revenues.

News Story: AP

Assume you run an organization, and you discover that your revenues (income) are being exceeded by your expenses. What would you do? Would you, (a) Immediately close down your sixth largest source of income, (b) Close down your fourth and fifth largest sources of income, (c) Increase your budgeted expenditures by 9%, (d) Anger your customers by eliminating their recreational options, or (e) Increase your prices by 16.67% to cover the revenue shortfall (further angering your customers)?

If you're Democratic Governor Jon Corzine of New Jersey, you would do all of these. Already the New Jersey Lottery is closed; horse racing and casinos will close tomorrow morning at 8am EDT (the New Jersey Supreme Court rejected their appeals); state parks and beaches will close tomorrow; and the only option that Governor Corzine is offering the state legislature (controlled by Democrats, by the way) is a sales tax increase. The Speaker of the State Assembly, Joseph Roberts (D-Camden) has rejected the tax increase.

So Governor Corzine moves down a path where he has put thousands of state workers on unemployment. Tomorrow he hits the private sector, casting thousands in Atlantic City to the unemployment lines. He has exacerbated the problems dramatically. Governor Corzine even makes Gray Davis look good! Today, as we celebrate Independence Day, his actions stand in stark contrast to what our Founding Fathers wrought. Luckily, the voters in New Jersey will head to the polls in November to vote for Governor. I haven't seen any polls for New Jersey, but I'd expect that the Republicans in the Garden State won't have any shortage of issues to campaign on.

News Story: AP

Democratic Governor Jon Corzine ordered all nonessential New Jersey government offices to close, and road construction projects, motor vehicle offices, and the state lottery all went dark. Governor Corzine wants an increase in the state sales tax of 1%; the state legislature, which is controlled by the Democrats has refused to go along.

Already Corzine's shut-down order has stopped lottery sales, New Jersey's fourth largest source of revenue. A threatened closure of casinos (New Jersey casinos must have Casino Control Commission officers on their premises at all times) would deprive the state of about $1.3 million a day in tax revenue. Also closed are state beaches and parks during the long holiday weekend.

We heard yesterday that one of the reasons that the leaders of the State Assembly are opposing Corzine's proposed sales tax increase is not the increase in rate; rather, that it would also tax many additional items and services. For example, legal fees would be subject to sales tax. This has not been reported in the press, so we can't verify this.

We would be remiss to not comment on the political impact of tax increases and government shutdowns. Some of you may remember when the Republicans shut down US government in a dispute with the Clinton White House. It was not a political success for the G.O.P. And very few taxpayers enjoy tax increases while government spending rockets up. New Jersey Democrats, in control of all wings of government, may have major problems this election cycle.

News Stories: FoxNews, Home News Tribune, New York Times.

Editorial: Wall Street Journal

I joke with my writing partner about New Jersey being one giant swamp. At least the Garden State's politics are fun to watch—at a distance. Today, the New York Times reports that a few Democrats are now supporting Governor Corzine's proposal to increase the sales tax by one full percent, from 6% to 7%. However, the Speaker of the New Jersey Assembly, Joseph Roberts Jr. (D-Camden) opposes the increase. Given that Roberts has final say as to whether anything comes to a vote in the Assembly, the sales tax increase is in danger.

New Jersey's constitution requires a balanced budget by July 1st; it's unlikely that this will occur. Governor Corzine is, according to the Times article, making plans to "...close parks, historic sites, campgrounds and casino and halt highway construction and the lottery should the state miss the deadline." That sounds particularly brilliant. Let's stop the lottery and casinos, two of New Jersey's biggest sources of revenues. Of course, given New Jersey's politics, perhaps this is inevitable.

New York Times article

...the state would probably be run much more efficiently than it is today. Their methods, though, might leave something to be desired.

However, the methods employed by Governor Jon Corzine leave a lot to be desired. Corzine wants to increase New Jersey's sales tax rate by 16.67% (from 6% to 7%), and add a $1,424/month "bed tax" on hospitals. Certainly, it's creative, but as Professor Maule notes this fee tax would just be passed on to users of hospitals. Health insurance premiums would rise, and hospitals will suffer. It's likely that the number of available hospital beds would shrink. It is basic economics.

Luckily for residents of the "Garden State," even his Democratic colleagues in the New Jersey Legislature aren't happy with his proposals. The Newark Star-Ledger quotes Assemblywoman Joan Quigley as stating, "[this tax money would go into] a black hole...We are taxing hospitals to pay for roads and jails."

Given the political climate in New Jersey (corruption and a very dysfunctional electorate) I won't be surprised if Governor Corzine's budget is implemented.

News Stories: Philadelphia Inquirer, Newark Star-Ledger

Remember Captain Renault from Casablanca? He steps into the back room of Rick's Cafe, and says, "I'm shocked, shocked to find that gambling is going on in here!" A croupier then hands him a pile of money and says, "Your winnings, sir." That's how I feel when discussing corruption in New Jersey.

Last week I reported on corruption at the Department of Taxation. Today, courtesy of the TaxProf Blog, we find corruption in the school system. The report shows that administrators are making far more money than what one would expect. The TaxProf Blog then goes on to note that schools in New Jersey are funded by property taxes, and that New Jersey's property tax rates are among the highest in the nation. The Wall Street Journal has a particularly good critique of this issue in an editorial today.

So what do you suppose New Jersey's Governor Jon Corzine would do? Promise to stamp out the problem? A fight against corruption? How about a budget full of tax increases? No, he couldn't have that kind of poor political timing.

Sorry, the cynics win.

"Residents see higher taxes, less relief under Corzine's $30.9 billion budget" screams AP's headline in Newsday. The article goes on to detail a $1 billion increase in sales tax (by increasing the tax rate from 6% to 7%), and another $0.8 billion increase in other taxes. To his credit, Corzine also wants to find a few programs to cut ($2 billion in spending on a $31 billion budget). However, while he may be cutting some programs, the budget is, overall, a 9% increase from fiscal 2006's $28.3 billion.