Taxable Talk

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