Tax Reform Takes More Than Baby Steps

By Jon Shure

What three-letter word ending in "x" scares some people and inhibits others so much that frank talk about it is out of the question?

If you think the answer is "s-e-x," which solar system have you been living in? For better or worse, nothing is held back about sex today. But "t-a-x" — that's a different story. What a commentary on our times: the President's sex life is all over the front page and the evening news, but meaningful discussion of how to bring justice to New Jersey's archaic tax system is relegated to whispers.

A reminder of that came the other day when the Property Tax Commission that Governor Whitman appointed last year released its report. If there is a Victorian approach to fiscal policy, this was it. I say that because to make recommendations for easing the property tax burden without mentioning how to put the entire tax system back into whack is to blatantly ignore reality. It is like pretending that aspects of sex which might make some people blush just don't exist.

It's hard to blame the Commission members. They were just following orders reminiscent of Henry Ford's promise that Americans could buy any color of Model-T they wanted, as long as it was black. The Governor's Office told The Property Tax Commission to make any recommendations it wanted as long as it didn't suggest increasing the income tax. Mentioning the honest way to confront the problem is now a taboo.

Some of what the Commission said makes sense, like the assumption by state government of the costs of county prosecutor's offices. Prosecutors, after all, are appointed by the Governor and serve under the state Attorney General.

Other proposals are puzzling, like limiting teachers' salaries. To say that people in one particular profession are to blame for New Jersey's historic addiction to property taxes is deceptive. It implies we spend too much on education, when the bigger problem is that state government contributes too little and leaves it up to localities to make up the rest. That, of course, means serious disparities from town to town. On average, states pay 50 percent of local school costs. In New Jersey it's just over 40 percent. The result is that middle-class people get squeezed because the system overtaxes the value of their homes instead of their income or their total (not just property) wealth.

The Commission got at some of the problem by pointing out the inefficiency of New Jersey having 611 school districts and 566 municipalities. Consolidation would save money and it should be pushed. But it should not be sold as the entire answer—not when New Jersey has a tax system forcing middle-class residents to pay a higher percentage of their income in total taxes than the richest residents. As a 1996 report by the Washington-based Citizens for Tax Justice found, middle-class New Jerseyans pay about 9 percent of what they make per year in the form of sales, property, and income taxes. That is half again as much as the richest, who pay a little more than 6 percent of their income. At the bottom of the income scale it is even worse: the poorest pay nearly 16 percent.

You don't solve that mess by nibbling around the edges. But it isn't surprising that this is what the Commission did. No one likes to hear that they made a mistake. And a realistic appraisal of what to do about property taxes in New Jersey could only conclude it was a mistake to lower the state income tax by 30 percent in Governor Whitman's first term. Such an honest look at the entire New Jersey tax structure would inevitably find that in cutting the income tax, the Governor fixed the one tax that wasn't broken. The state income tax is progressive. It takes a higher percentage from the people with the highest ability to pay. Local property taxes—and the state sales tax—are regressive. People at lower income levels simply cannot escape having to pay a higher percentage of what they earn on those taxes than do people at higher income levels.

Unfortunately, at the highest levels of state government that kind of tax discussion is still in the closet. Maybe the commission's report will prove valuable in that it helps to trigger open debate. But as for the recommendations themselves—well, time will tell if they are small steps forward or backward, but what's immediately clear is that they are small steps indeed.

A version of this commentary by Jon Shure appeared in The Record newspaper.