The New Jersey model
An interesting article in the Wall Street Journal about newly elected NJ governor Chis Christie. The Republican, elected in a traditionally blue state, ran as if he’d be a one-termer and laid out the distasteful medicine necessary to put the state’s fiscal house in order. To the surprise of many, he won. He’s now engaged in doing what he said he’d do.
His assessment and conclusion are solid:
“We are, I think, the failed experiment in America—the best example of a failed experiment in America—on taxes and bigger government. Over the last eight years, New Jersey increased taxes and fees 115 times.”
And what has NJ gotten for that?
New Jersey’s residents now suffer under the nation’s highest tax burden. Yet the tax hikes haven’t come close to matching increases in spending. Mr. Christie recently introduced a $29.3 billion state budget to eliminate a projected $11 billion deficit for fiscal year 2011.
Obviously, as must be done in a state which has the nation’s highest tax burden, Christie has laid out a very aggressive plan that cuts spending to eliminate that deficit. And, as you might imagine, the entrenched interests which will see their budget’s cut are almost unanimous in their opposition. Most the opposition comes from government unions, and especially from New Jersey Education Association, the state’s teacher’s union.
And Christie is using a little of the left’s favorite tactics against them:
“I’m a product of public schools in New Jersey,” Mr. Christie explains, “and I have great admiration for people who commit their lives to teaching, but this isn’t about them. This is about a union president who makes $265,000 a year, and her executive director who makes $550,000 a year. This is about a union that has been used to getting its way every time. And they have intimidated governors for the last 30 years.”
Christie is obviously not going to be intimidated. And he’s got the numbers and, apparently, the public behind his effort to pare the educational establishment down to a manageable and affordable size:
While the state lost 121,000 jobs last year, education jobs in local school districts soared by more than 11,000. Over the past eight years, according to Mr. Christie, K-12 student enrollment has increased 3% while education jobs have risen by more than 16%. The governor believes cuts in aid to local schools in his budget could be entirely offset if existing teachers would forgo scheduled raises and agree to pay 1.5% of their medical insurance bill for one year, just as new state employees will be required to do every year. A new Rasmussen poll found that 65% of New Jersey voters agree with him about a one-year pay freeze for teachers.
The union, of course, has it’s own favored solution and I assume you can guess what it involves:
But the teachers union wants to close the budget gap by raising the income tax rate on individuals and small businesses making over $400,000 per year to 10.75% from its current 8.97%.
Obviously he has a lot of other fights within the state on his hands, such as cutting the onerous regulation regime the state has built, but he has a primary goal and desire to return the state to fiscal sanity. And he also knows that to do that he has to lower overall taxes – if he wants to again attract business and those who earn enough to provide a solid tax base.
The governor aims to move tax rates back to the glory days before 2004, when politicians lifted the top income tax rate to its current level of almost 9% from roughly 6%. Piled on top of the country’s highest property taxes, as well as sales and business income taxes, the increase brought the state to a tipping point where the affluent started to flee in droves. A Boston College study recently noted the outflow of wealthy people from the state in the period 2004-2008. The state has lately been in a vicious spiral of new taxes and fees to make up for the lost revenue, which in turn causes more high-income residents to leave, further reducing tax revenues.
So here’s a governor who understands that what has been heaped on the back of the taxpayers that are left is too much and is looking at other real ways of reducing the cost of government – i.e. actually seeking out where it has become bloated, putting some of the costs of the benefits government workers receive back on them, cutting unnecessary spending all with a goal of eliminating the deficit the state faces. And, by the way, planning on reducing the tax rate with an eye toward luring back the affluent and businesses with an eventual goal of actually increasing tax-revenues, and jobs, and all the other benefits such an influx would bring.
“What I hope it will do in the end is first and foremost fix New Jersey, and end this myth that you can’t take these people on,” he says. “I just hope it shows people who have similar ideas to mine that they can do it. You just have to stand up and grit your teeth and know your poll numbers are going to go down—and mine have—but you gotta grit it out because the alternative is unacceptable.” He also strongly believes that voters elected him specifically to fight this fight. “They’re fed up. They’ve had enough. In normal circumstances I wouldn’t win,” he says.
He’s probably right about that. He probably wouldn’t have won 3 or so years ago. And he’s right that the voters, as his election demonstrates, are “fed up”. But, once the cuts start to hit, nothing says Christie will be given the continued support necessary to accomplish his goals. But he seems to be a man who is going to do all he can to accomplish them. I call it the New Jersey model because if successful, Gov. Christie will provide both the blueprint and the success story which small government/fiscally conservative types can point to when discussing what must -and can – be done at both a state and national level. I’ll be watching the NJ saga develop with great interest over the years, and wishing Gov. Christie the best of luck in attaining his goals.