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The Politics of the Budget: For Christie, Any Income Tax Cut Will Do

Friday, May 25, 2012

So what does Chris Christie really want?

The Republican governor started out in January calling for a 10 percent across-the-board income tax cut. The cut would mostly benefit the wealthy, but Christie defended it on the basis of economic competitiveness, arguing that it was needed to retain and attract "top earners and job creators" to New Jersey.

Then, less than two weeks ago, Christie agreed on a tax cut "compromise" with Senate President Stephen Sweeney (D-Gloucester) that essentially adopted Sweeney's plan to provide property tax credits of up to $1,000 on the income tax bills of those earning up to $400,000 -- without a penny going to the millionaire and multimillionaire "job creators" his original plan was designed to woo.

The Christie and Sweeney tax plans could not be more different in their goals and in the population they are designed to help, but in Christie's view, they were both "10 percent income tax cuts" and he said repeatedly that he was "delighted that Democrats were now debating which tax to cut."

Clearly, to Christie, any "10 percent income tax cut" will do -- as long as he can sign it into law by July in time for the Republican National Convention in Tampa this summer. And, as he said Wednesday, "if taxes do not get cut this year, it is the responsibility of one group of people and that is the legislative Democrats."

Whether the "legislative Democrats" will give Christie a tax cut he would be willing to sign is an open question.

First, there are really two groups of legislative Democrats. Pragmatists like Sweeney simply want to provide property tax relief and want to pass a bill they know Christie will sign. Progressives like Assembly Speaker Sheila Oliver (D-Essex) and Assembly Majority Leader Lou Greenwald (D-Camden) believe that a millionaire's tax should fairly be part of any property tax relief package, even if Christie will veto it.

In fact, some Democratic strategists believe that sending Christie off to Tampa empty-handed by forcing him to veto a tax cut that would benefit 98 percent of New Jerseyans and raise taxes on the wealthiest 2 percent would be the ideal political outcome.

Second, the admitted $676 million shortfall in Christie's "Jersey Comeback" -- and the potential $624 million additional gap identified by the Office of Legislative Services' David Rosen ("the Doctor Kevorkian of the numbers," as Christie calls him) -- provide justification for Democrats to take a wait-and-see approach on state revenue collections, with the intent of passing a compromise version of the Senate and Assembly Democratic tax cut plans by the end of December.

While Christie's income tax cut needs to kick in on July 1, the Sweeney and Greenwald plans would provide the same level of tax cut for the year through a checkoff on next April's income tax returns, and the Assembly "millionaire's tax" could just as easily take effect next January 1 as this July 1, so there is no need to pass their tax cut bills now.

Passing a tax cut five or six months from now could easily be defended as fiscally responsible. It would give Democrats additional time to sell their "millionaire's tax" while hammering Christie for proposing an income tax cut that would benefit the rich. And best of all for Democrats, it would deny Christie yet another victory lap going into the Republican National Convention.

In any case, Democratic sources said, the goal is to have the "legislative Democrats" agree on a strategy and a compromise tax cut proposal, rather than allowing Christie to divide the Democratic Party -- as the Christie-Sweeney tax cut deal threatened to do -- by pitting the pragmatic wing against the progressives once again heading into the 2013 gubernatorial and legislative elections.

The key is to be willing to shrug off the Christie public onslaught -- perhaps accompanied by a TV ad campaign financed by his 501c4 political action committee -- that will undoubtedly come if the Democratic-controlled Legislature fails to pass a tax cut by June 30. Democrats would have to adopt the attitude Greenwald expressed after Christie attacked "legislative Democrats" Wednesday: "If he stomps his feet, I feel the quake, but I don't shake."

Christie's insistent push for a multiyear income tax cut starting in July to go along with the multiyear business tax cuts that were approved by the Legislature last June is not proof that the Republican governor is angling for the vice presidential nomination to run with Mitt Romney in November. Nor is the expansive budget he proposed in February that included very aggressive revenue estimates, which are currently coming up short, and a broad array of new programs and initiatives designed to appeal to every constituency -- which is what governors usually do in their reelection years, not the year before, unless their eyes are on another election.

But Christie has gone from discouraging vice presidential talk to saying he would consider the No. 2 spot if Romney asks. Further, he has done everything he possibly could do if he does want a shot at the national ticket, from endorsing Romney early to serving as a reliable and popular surrogate speaker in key primary states while the nomination was still in doubt to raising tens of millions of dollars for the campaign. His "take no prisoner" rhetoric and slashing YouTube videos have made him a cult hero to conservatives nationwide, and at the very least, he would like to go into the Republican National Convention in good position to run for President in 2016 if Romney loses. And nothing would better cement Christie's credentials than a "10 percent income tax cut" to brag about.

Christie's campaign for the income tax cut may say as much about his ambition as it does about his policy goals.

Christie started out in his State of the State speech in January calling for a 10 percent across-the-board income tax cut. New Jersey has one of the most graduated income taxes in the nation, and Democrats were quick to point out that a millionaire would receive a $7,265 tax cut while a family earning $50,000 would receive only $80.50 and a family making $100,000 would receive just $275.

Christie defended his tax cut not on the basis of equity, but of competitiveness and job creation. He pointed out that Connecticut, New York, and California "raised income tax rates on top earners and job creators," and that New Jersey could win the "competition for jobs" by choosing tax cuts that would "help New Jersey grow." It is a message he has carried across the country in speeches at prestigious Republican foundations, fund-raisers for Romney, and rallies for GOP candidates for governor and Senate.

State Treasurer Andrew Sidamon-Eristoff reinforced that traditional Republican "trickle down" message in his Assembly Budget Committee testimony Wednesday when he defended the importance of an income tax cut weighted toward millionaires, even though state revenues were not increasing as rapidly as he and the governor had originally forecast.

"We have a system that heavily relies on high income taxpayers and we need more of them in New Jersey. Give me more millionaires so I can tax them," he said. Christie's treasurer specifically warned against "making our own income tax structure more progressive" by enacting any tax cut that would make New Jersey's budget more reliant on the bonuses and stock options of millionaires and decamillionaires.

So what was Chris Christie doing on May 14 preparing for a joint press conference with Sweeney at which they would announce a tax cut "compromise" that would provide a property tax credit on the income tax cut of up to $1,000 limited to New Jerseyans making up to $400,000?

It wasn't much of a compromise -- basically, it was Sweeney's plan to offset property taxes by providing families an average credit of $775. The only concession Christie got from Sweeney was an agreement to extend the maximum $1,000 credit to those earning between $250,000 and $400,000 in taxable income.

The $1,000 would be less than the $1,506 to $2,143 that these professionals and small business owners making between $250,000 and $400,000 would have received under Christie's original 10 percent across-the-board income tax cuts. As for the half-millionaire and millionaire and decamillionaire "top earners and job creators" that the Christie tax cut was designed to keep in New Jersey or attract from other states, the Christie-Sweeney compromise would have provided exactly zero.

So why did Christie go for a Democratic middle-income tax cut that Sweeney designed primarily to provide property tax relief to every homeowner and keep middle-income taxpayers from moving across the river to Pennsylvania, rather than to keep millionaires and decamillionaires from fleeing to tax havens like Florida and Wyoming?

It's a question that no one asked in the furor that ensued when Sweeney pulled out of the press conference, at least partly because he was facing a minirevolt in the ranks from senators who were upset because they didn't know the compromise was coming, even though most of them would have been delighted with the details. When the deal fell apart, questions about the deal died with it.

But for four hours at least, Christie was fully on board with a tax cut that would have the effect of "making our income tax structure more progressive," to put it in Sidamon-Eristoff's words, and increasing the state budget's reliance on the wealthy to pay the bulk of state income taxes. It wasn't Christie who backed out -- it was Sweeney.

So why did Christie go for the deal? Christie effectively answered that question himself with his constant efforts throughout March and April to rebrand Sweeney's property tax credit as an "income tax cut" similar to his own -- even though the two plans could not have differed more in their approach or in who would benefit, as a chagrined Sweeney continually pointed out.

"Christie's is an income tax cut that benefits the rich. Mine is a property tax cut that helps the middle class," Sweeney said in an interview last month. "The governor keeps saying they're the same, but they're not. He just thinks if he keeps saying it, people will believe it, and he'll get the credit."

Christie knew he could not get his 10 percent across-the-board income tax cut with its huge cuts for the wealthy through Sweeney's Senate, much less Oliver's Assembly, but the concept was popular with conservatives, and New Jersey Republican legislators dutifully crusaded for it, even those who would have preferred a property tax cut more popular with their constituents.

The other reason for the May 14 deal was clearly the timing. Christie's office was in charge of the announcement, and they were lining up TV crews and print coverage starting at 11 a.m. that day for a 3 p.m. press conference -- the announcement of a bipartisan tax cut compromise that would trump the dismal news due to be released later that day that the April tax collections would show that revenues were coming in at least $230 million below Christie's optimistic projections.

Sweeney was still recovering from a minor medical procedure that morning when reporters began calling key Democratic legislators to ask them about a Christie-Sweeney tax deal they knew nothing about. Sweeney undoubtedly thought he could call legislators an hour or two before the deal because Christie had basically agreed to endorse the property tax relief measure they were already supporting. Adding the $250,000 to $400,000 bracket would add relatively little to the cost of the program. But by the time Sweeney was ready to call his colleagues, Senate Majority Leader Loretta Weinberg (D-Bergen) and other leading Senate Democrats were already calling him demanding to know what was going on, and powerful Sen. Raymond Lesniak (D-Union) was questioning publicly whether the state could afford a tax cut with revenues coming in below expectations.

Sweeney pulled out of the press conference, forcing Christie's embarrassed press office to cancel the 3 p.m. event without explanation just 20 minutes in advance, and the Treasury Department decided to delay the release of the offending revenue numbers until the following morning. By then, Sweeney had decided to try to see if he could work out a compromise with Assembly Democratic leaders before going back to Christie.

Then came the disagreement between Sidamon-Eristoff and Rosen over the revenue numbers at the Assembly Budget Committee hearing Wednesday, with Christie's treasurer accepting a $676 million shortfall and Rosen suggesting an additional $624 million revenue dip that would leave Christie's "Jersey Comeback" a total of $1.3 billion short.

After listening to Rosen and Sidamon-Eristoff for more than five hours, Assembly Budget Committee Chairman Vincent Prieto (D-Hudson) echoed Lesniak in saying he was not sure if the state could afford a tax cut this year, although he said he was still going to push for property tax relief this year. Christie will demand legislative action in the weeks ahead, but with both houses controlled by those "legislative Democrats," the governor-who-would-be-vice-president will have to wait for Democratic leaders to decide what to do. Christie can stomp his feet and the earth will shake, but this time, the Democrats may not quake.

To read more, go to NJ Spotlight.

NJ Spotlight is an online news service providing insight and information on issues critical to New Jersey, with the aim of informing and engaging the state’s communities and businesses. Read more From New Jersey Spotlight.

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