Tax Reform and Budget Solutions

1

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
2

A Tax System Out of Whack
$22.5 Billion Sales Taxes $8.1 Billion Property Taxes $23.7 Billion Income Taxes $11.7 Billion
Corporate Tax $2.7 Billion
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Rebalancing the Tax System

Property Taxes $24 Billion

Property Taxes $20 Billion

Income Taxes $11.7 Billion
Corporate Taxes $2.7 Billion

Income Taxes $11.1 Billion
Corporate Taxes $2.0 Billion

Sales Taxes $ 8 Billion

Sales Taxes $ 12 Billion
4

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 $3.9B $5.5B $(4.0)B $(.62)B $(.75)B $(5.37)B $130m Existing Property Tax Relief Broadening Sales Tax Total Sources Property Tax Cut Income Tax Cut Corporate Tax Cut Total Uses 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 Tax Cut up to $2,500 for all Homeowners. All Seniors get $2,500.
SALES TAX

Top Bracket Cut from 10.75% to 8.97%

Corporate Tax Rate Cut from 9.36% to 7%

Broadened to Tax More 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 Property Tax Rebate Pension Contribution Federal Stimulus Dip Forecast Budget Growth, Non Recurring Revenue Forecasted Revenue Growth TOTAL GAP ($1.1B) ($1.6B) ($2.5B) ($1.6B) ($2.0B) $0.8B ($8.0B)
12 Note: Estimates by OLS

Addressing the Gap

Expiring Tax Revenue Property Tax Rebate Pension Contribution Federal Stimulus Dip Forecast Budget Growth, Non Recurring Revenue Forecasted Revenue Growth

($1.1B) ($1.6B) ($2.5B) ($1.6B) ($2.0B) $0.8B

Addressed through tax plan Salary growth reduced lowering liabilities Freezing cost increases through budget process

TOTAL GAP

($8.0B)

13 Note: Estimates by OLS