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With state governments all across America, including New Jersey’s, facing their gravest budget crises since World War II, a fascinating new dynamic is developing in terms of their relationship with Washington. In a nutshell, it comes down to this:
What President Bush giveth, the governors taketh away.
Here’s how this game of pass the buck has come about:
The federal government, already digging itself a deep budgetary hole with the president’s tax cuts and looking at an even larger deficit as the cost of waging war in Iraq gets factored into the equation is cutting back on aid to the states in just about every category: education, health care, transportation, human services, even homeland security. This loss of federal aid, coupled with the general state of the economy, is leaving state governments facing significant reductions in anticipated revenue. And since the states (unlike the federal government) aren’t allowed to spend more than they take in, they must either find other sources of revenue to make up for the loss in federal aid or slash expenditures.
"Other sources of revenue" is, of course, a euphemism for taxes which most governors, including New Jersey’s James E. McGreevey, are loath to raise, particularly in a recession. So the proposed state budget here, as in many other states, takes an ax to programs ranging from the arts to the sciences, not to mention state aid to counties, municipalities and school districts.
That, at least, is how the fallout from the exploding federal deficit has been trickling down until recently. Suddenly, a lot of state officials, along with advocates for all the programs poised to suffer big budget cuts, have identified a potential source to tap for some of that lost revenue: all the people benefiting from the president’s tax cuts. They argue that since those in the highest income brackets will benefit most from reduced federal taxes and since this reduction is, in large part, responsible for the decline in federal revenue that is, in turn, causing the cutbacks in aid to the states it’s only fair to raise state income tax rates in these same brackets to make up the difference.
It’s an intriguing argument. Certainly, those in the highest income brackets, with or without the added benefit of the president’s tax cuts, have the deepest pockets to pay for the state and local programs that face devastating cutbacks. In New Jersey, where those in the highest brackets pay proportionately less in state income taxes and local property taxes (about 8.2 percent of total income) than those in the lowest brackets (about 12.4 percent), raising the top income-tax rates also would distribute the burden of paying for state and local programs more equitably.
Interestingly, Gov. McGreevey appears to be one of the few elected officials in Trenton and, as best we can tell, the only Democrat who has no interest at all in pursuing the idea of this so-called "millionaires’ tax." Spooked, no doubt, by the memory of what happened to former Gov. Jim Florio, who filled a budget gap in 1990 by raising taxes and never recovered from the backlash, Gov. McGreevey seems more inclined to emulate Gov. Florio’s predecessor, Tom Kean, who let the Legislature fill a 1982 budget gap by raising taxes (which he signed with great reluctance) and went on to win re-election three years later in a landslide.
If that’s Gov. McGreevey’s gambit, so be it. If, on the other hand, he is serious in his opposition to the "millionaires’ tax," even as an interim measure to save imperiled state programs and services, he is doing the state and its residents a disservice. If a bill to raise the top income-tax rates gets to his desk, we don’t care if he signs it with a flourish or holding his nose. We care only that he signs it.
