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.
State Government Affairs Manager
National Taxpayers Union