Tax Reform And Budget Solutions

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 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 3

Rebalancing the Tax System

Property Taxes $24 Billion

Income Taxes $11.7 Billion

Property Taxes $20 Billion

Income Taxes $11.1 Billion Corporate Taxes $2.0 Billion

Corporate Taxes $2.7 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). 5

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

Existing Property Tax Relief Broadening Sales Tax

$5.5B

Total Sources

$(4.0)B $(.62)B $(.75)B

Property Tax Cut Income Tax Cut Corporate Tax Cut

$(5.37)B

Total Uses

$130m

Net to be dedicated for open space, tourism, free beaches 7

The Daggett Tax Cut PROPERTY TAX

25%Property Tax Cut up to $2,500 for all Homeowners. All Seniors get $2,500. SALES TAX

INCOME TAX

Top Bracket Cut from 10.75% to 8.97%

CORPORATE TAX

Corporate Tax Rate Cut from 9.36% to 7%

Broadened to Tax More Services: Rate Stays at 7% with No Tax on Necessities 8

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. 9

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. 10

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

($1.1B) ($1.6B)

Addressed through tax plan

Pension Contribution

($2.5B)

Salary growth reduced lowering liabilities

Federal Stimulus Dip Forecast Budget Growth, Non Recurring Revenue

($1.6B)

Forecasted Revenue Growth

TOTAL GAP

($2.0B)

Freezing cost increases through budget process

$0.8B

($8.0B)

13 Note: Estimates by OLS