Public Spending, AFFORDABLE PLACE TO LIVE
Connecticut’s Fiscal Crisis Is a Cautionary Tale for New Jersey – A New Report by GSI
Connecticut provides a cautionary tale for the next governor of New Jersey, according to a report from the newly launched Garden State Initiative. With its “severe pension underfunding, a high tax burden and politically powerful government unions,” New Jersey is facing challenges that have already placed it near the bottom of national rankings of fiscal health, according to the author of the report, Stephen D. Eide of the Manhattan Institute. One of the only states to fare worse in recent years has been Connecticut, which mirrors New Jersey in many ways.
Tax policy is one of the major themes of the campaign for governor of New Jersey. Since the Great Recession, the Garden State has cut some taxes and avoided raising income taxes, which has helped its recovery. Connecticut, however, boosted already-high taxes, counted on economic growth that didn’t materialize and now faces the repercussions, according to the 16-page report, “Connecticut’s Fiscal Crisis is a Cautionary Tale for New Jersey.”
The result in Connecticut over the past few years has been massive budget deficits, a shrinking population and the departures of corporate anchors General Electric and Aetna, according to the report. More recently, one of its growing firms, Alexion, has joined the exodus.
“New Jersey need only look to our neighbor Connecticut to understand the impact of certain fiscal and tax policies,” says Regina Egea, president of the Garden State Initiative.
GSI is devoted to promoting common-sense solutions to New Jersey’s financial problems of high taxes, escalating cost of government and our neglected transportation infrastructure. The release of the report coincides with the launch of GSI. “Like many of my fellow New Jerseyans, I couldn’t think of a better place to live, work and raise a family,” Egea says. “Yet, year after year, too many of our local employers and neighbors have moved out of state because of the crushing tax burden and regulations that throttle growth and innovation.”
One significant problem that the report details is the heavy reliance by both states on high-earners, even though these people can suffer big drops in incomeor leave the state altogether, creating big holes in the state budget. As of 2014, 40.2% of New Jersey’s income-tax revenue comes from residents who earn more than $500,000 a year. It’s 44.7% in Connecticut. Nevertheless, political support is high for the re-imposition of the “millionaire’s tax” in New Jersey, though the top rate is already 8.97%.
The lesson that emerges from this study is clear: For those who think that New Jersey’s budgetary challenges are rooted in inadequate levels of taxation, Connecticut provides a road map of what not to do. “When governments raise taxes not to enhance services but to pay for the costs of the past,” Eide writes, “this not only weakens their advantage relative to low-tax jurisdictions but also to high-tax jurisdictions with a reputation for a high quality of life.”
Click here to download the PDF of the full report.