The Wall Street Journal

  • JANUARY 28, 2012

Now that the governor has controlled state spending, he’s pushing tax reform and hoping to steal businesses and residents from neighboring blue states.


Garden State Gov. Chris Christie has a message for the top 1% of income earners: Please occupy New Jersey. “I’m going to start going after a lot of these hedge-fund guys who are in Connecticut and New York and say, ‘You’re going to get a better deal with us,'” says the country’s most important Republican not running for president.

Mr. Christie’s new tax-reform plan also offers an improved deal to the bottom 99%, which is why he may be able to move it through New Jersey’s Democratic legislature: a 10% cut in tax rates across the board.

The governor is two years into a four-year term. In 2010, he told the Journal’s editorial board that the Garden State represented America’s best example of a “failed experiment” in rising taxes and bigger government. As he returns to the Journal for another visit, it’s time to check the results of his counter-experiment.

Politically, so far so good. A recent Quinnipiac poll gives him a 53% approval rating among the state’s registered voters, and Mr. Christie says that private polls show him “in the low 60s.”

Economically, unemployment in the state has fallen to 9% from a high of 9.8%. With almost 3.9 million people working, New Jersey has added almost 60,000 private-sector jobs since he took office, while shedding more than 21,000 government jobs. Reforms of the pension and health programs for government employees will save taxpayers an estimated $120 billion over the next 30 years. A new limit on local property-tax increases appears to be working.

Mr. Christie says that he can now push for the tax cuts that he promised would happen if the state controlled its spending. The governor made that promise while seeking the job in 2009, and he recalls the skepticism at various newspapers during the campaign: “They looked at me like I was an alien.” Because many media folk couldn’t believe the state government could afford to reduce tax rates, “They just basically accused me of lying to get elected.”

Now he reports that the state has been running modest surpluses for a very simple reason. He requires the commissioners of all departments to report each month on how they are meeting budgeted spending levels.


Terry Shoffner

“What happened before in state government was that they would just spend, and then in April they would come to the governor’s office and say, ‘Oh, oops. Sorry, we need another 30 million. We need another 50 million.’ And there would be a huge number of supplemental spending bills that would get passed on June 30th along with the budget for the next fiscal year,” often with tax hikes to pay for them, says Mr. Christie. “And I said to my folks, ‘If you don’t manage to budget, you’re going to get fired.'”

Mr. Christie proposes to phase in his tax cut over three years. If the state’s economy continues to rebound and state revenues grow, he says he’ll look to make even deeper rate cuts.

Having spent his first two years playing defense against unsustainable spending, Mr. Christie is eager to start competing with neighboring states for jobs, talent and capital. Step one was to decide which tax reform would be the biggest draw for new residents and new businesses. He chose to attack the income tax because “that will be the thing that will make us the most competitive from a jobs perspective.” His decision was made easier when he saw neighboring New York Gov. Andrew Cuomo push through an income-tax increase in December.

“When Governor Cuomo raised taxes over here that made it even more attractive for me to go after the income tax . . . from a competitive perspective.” He adds that with Gov. Dannel Malloy also enacting a tax increase in Connecticut last year, “it’s a strategic decision as much as a philosophical decision.”

New Jersey has a long way to go. This week the Tax Foundation again rated it dead last among the 50 states for its overall business tax climate. As for individual income taxes, Mr. Christie notes that since 2003 the top marginal rate has risen to 8.9% from 6.25%. If Mr. Christie succeeds in knocking that top rate down to a flat 8%, Jersey will still be above Connecticut’s 6.7%. But since Connecticut now edges New Jersey for the country’s highest property taxes, according to the Tax Foundation, the Garden State is at least in the ball game.

As for New York, now that Gov. Cuomo has bumped the top rate up to 8.82%, some Empire Staters may be tempted to cross the Hudson, especially if they live in New York City and now face a staggering combined state and local income tax rate of 12.7%.

To be sure, even a reformed top rate of 8% in New Jersey would still be extremely high and won’t necessarily keep residents from fleeing to Pennsylvania’s 3% rate or to Florida, where there’s no state income tax at all. But Mr. Christie is still catching flak for his baby step toward tax reform.

“We have an incredibly progressive income tax rate system and so when I’m getting push-back now about a 10% cut across the board and people arguing, ‘Well it disproportionately benefits people who make more money,’ I’m like, ‘Well of course, because you made the decision to have an extraordinarily progressive tax code where the top 1% in New Jersey pays 41% of the income tax. So those are the folks who are going to get a large share of the . . . cut.’ But everybody’s getting a 10% cut.”

Mr. Christie’s plan also includes a boost in the so-called earned income tax credit—a “tax cut” even for people who don’t pay income taxes. Because this credit is refundable, at the lowest income levels it functions as a wealth transfer from citizens who pay income taxes. “It’s to get Democratic votes,” he concedes, but “given how challenged some of the families are on the lower end of our income scale and how expensive it still is to live in New Jersey . . . I don’t have a problem with it.”

And for those at the upper end of the income scale, Mr. Christie is setting a different course from the man he has endorsed for president, Mitt Romney. While Mr. Romney has taken pains to ensure that his own tax plan offers little relief to wealthy citizens like himself, Mr. Christie argues that his state can’t afford to drive away successful people. Perhaps Mr. Romney should take note of Mr. Christie’s unapologetic case for sound tax policy—and his approval ratings.

As for Mr. Christie’s plan, since he is already being criticized for allowing the wealthy to benefit along with everybody else, why not go ahead and push for the most competitive reform—a low-rate flat tax?

“I couldn’t get it passed. I mean I’ve made the political evaluation that with solid Democratic majorities in the legislature, they would just never pass a flat tax. And so, you know, I could go through the show of proposing it, having it go nowhere and then trying to retrench and get something else. I’d rather put all my eggs in the basket of what I think I can get and I think I can get this.”

Some may wonder how he can get anything after a political redistricting plan last year favored Democrats, who then went on to maintain their legislative majorities in the fall elections. One answer is that the governor of New Jersey holds significant powers, including the ability to impose salary terms if state-employee unions won’t agree to contracts. As old contracts expire, he’s been negotiating aggressively. Mr. Christie says he’s been helped by his earlier success in reining in the cost of benefits and has lately come to terms with two unions on new contracts. They provide no salary increases for the next two years and modest hikes after that.

“They would never have accepted that except for the fact that we’ve gotten through to them that they are a weight on growth, that they are being unfairly compensated, that they are not part of the shared sacrifice, and that the alternative is continued layoffs and reduction by attrition,” he says. Mr. Christie still hasn’t cut a deal with the state’s largest government-employee union, the Communications Workers of America, but says “I can guarantee you this: They will not get a better agreement than the guys that already signed.”

The savings from these agreements can ultimately translate into lower burdens on taxpayers, and so can Mr. Christie’s ability to fill two new vacancies on the state’s seven-member supreme court. For years, the infamous Abbott decisions have had the courts essentially adopting the role of legislators and dictating how much taxpayers must spend on various school districts.

This week Mr. Christie nominated Assistant State Attorney General Philip Kwon and Chatham, N.J., Mayor Bruce Harris to fill the seats. It’s unclear what they think about Abbott, and Mr. Christie says he didn’t ask them about specific legal issues. But the governor clearly believes that the court has been seizing powers that belong to the legislature and the executive branch.

“There’s going to come a point where the other two branches are going to say, ‘Uncle.’ Just going to say, ‘Enough. Can’t take it.’ I can’t predict when that will be. I hope we don’t come to that day because it would be an awful thing for our system to have the executive and legislative branches just defy the judicial branch. But their decisions historically have been so outrageous.”

Mr. Christie says that he doesn’t favor defying the judiciary but adds, “I need to change the composition of the court and I intend to.”

But is he fundamentally changing the political culture of New Jersey? This week’s reaction to his tax reform suggests that he is. Democrats largely responded with their own plans to cut taxes, focused on local property bills.

Still, the governor isn’t declaring mission accomplished. “I don’t want to sit here and take bows two years in, saying I’ve changed it,” he says. “I think I’m making progress toward opening people’s eyes and opening their ears to listening to a different approach. And all the Armageddon that the Democrats predicted when I had to do the things I had to do in the first two years, people are waking up this morning going, ‘Hmm. Yeah, the sun’s still shining. My kids are still going to school. My neighbor’s got a job. He didn’t have a job before. Maybe this guy knows something. Maybe it’s working.'”

Mr. Freeman is assistant editor of the Journal’s editorial page.


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