While
some of his colleagues in other states have recently pushed and signed tax cuts
into law, New Jersey Gov. Chris Christie’s latest budget takes a troubling
detour from the generally sensible path on taxes and spending his previous
proposals have tried to follow.
First,
the good news: There are no income tax hikes on high earners, nor are there
gasoline tax increases — which Democratic lawmakers throughout the state had
requested.
The
not-so-good news: Christie, despite his claims to the contrary, has proposed at
least one outright tax increase.
The
governor’s budget calls for e-cigarettes and e-liquid to be taxed at the same
rates as actual cigarettes ($2.70 per pack), amounting to a $35 million yearly
tax hike. While “sin” taxes are often popular with politicians, this imposition
on vapor products would be especially damaging to both public health and small
businesses.
Consider
the makeup of an e-cigarette. The main ingredients producing the water vapor
are propylene glycol and glycerin, both considered harmless by the FDA and
found in everything from toothpaste and fog machines to foods and cosmetics.
Not
only that, but recent research from the R Street Institute’s Joel Nitzkin found
that e-cigarettes can actually reduce the risk of tobacco-related death or
illnesses by 98 percent or more. By tacking on an additional $35 million per
year levy, policymakers would likely price some consumers out of this
safer-than-smoking alternative.
Small
businesses also would be negatively affected by this new tax. The e-cigarette
stores opening up throughout New Jersey (as well as existing establishments
stocking them) would be hit hardest, as consumers are likely to avoid the tax
increase by purchasing from out-of-state vendors. As a result, public officials
cannot easily predict the consequences for revenues, since they would be effectively
punishing sales of a new product that can be purchased through other means.
The
bad news for taxpayers doesn’t end there. The governor is also attempting to
force out-of-state Internet retailers to collect an estimated $28 million in
sales taxes from New Jersey customers annually. While Christie’s aim is to
protect his state’s “brick-and-mortar” stores, this scheme amounts to
extraterritorial enforcement, a burdensome and constitutionally questionable
expansion of taxing powers that could encourage other states to do the same.
Furthermore,
the “pot of gold” envisioned from this policy is unlikely to be found. For
example, a recent analysis from the Wisconsin Taxpayers Alliance concluded that
the actual amount of “lost” sales tax proceeds from e-commerce in that state
may be about one-fifth of what had been previously projected.
Perhaps
the most worrisome aspect of Christie’s budget is its call for $34.4 billion in
state spending — a 4.2 percent increase from the budget that he signed into law
last year. This does not address the trend of overspending in the Garden State,
where state expenditures exploded by 48.7 percent between 2001 and 2011, even
accounting for inflation and population growth.
Besides
getting New Jersey’s spending addiction under control, it’s vital to improve
the Garden State’s attractiveness for businesses. A report from the
non-partisan Tax Foundation ranked New Jersey 49th out of 50 states in its
recent 2014 State Business Tax Climate Index, which takes into account
corporate, individual, sales and property tax rates, among other factors.
To
Christie’s credit, to this point he has balanced the Garden State’s budget and
mostly adhered to his 2009 campaign pledge not to raise taxes — impressive,
considering the dreary economic climate and high-tax atmosphere he inherited
upon moving into the governor’s mansion.
Yet,
even though he said in this year’s budget address that his plan “requires no
new taxes on the people of New Jersey,” the proposal clearly outlines a tax
hike on e-cigarettes and the enforcement of an online tax collection scheme,
while continuing the pattern of increased spending. These are signs that
Christie’s blueprint needs some revisions to build a stronger foundation for
the fiscal stewardship taxpayers deserve.
Lee
Schalk is state affairs manager for the National Taxpayers Union.
Lee
Schalk
State
Government Affairs Manager
National
Taxpayers Union
Office:
703.299.8680
Cell:
704.519.8755
