I will protect your pensions. Nothing about your pension is going to change when I am governor. - Chris Christie, "An Open Letter to the Teachers of NJ" October, 2009

Thursday, March 14, 2019

Only You Can Prevent Bad Tax Policy Discussions

When I started this blog up again earlier this year, I told myself I wasn't going to waste a lot of time debunking nonsense in the local media. Life is short and there's a lot to write about.

But some stuff I come across is so bad, I just can't let it go:
Q. Gov. Phil Murphy wants to raise the tax on incomes over $1 million, but Legislative leaders say they oppose that. Polls show overwhelming support among voters, so what gives on the politics? 
DuHaime: New Jersey families are overtaxed, and everyone knows if Trenton is talking about higher taxes, they’re eventually coming for you, too. Our elected leaders are supposed to do what’s right, not just what works in class warfare polling. From a policy perspective, New Jersey is too heavily reliant on our top earners. 1% of the taxpayers pay nearly 40% of the income taxes; 10% of the taxpayers pay nearly 70% of the income taxes. Look what happened when the financial markets nosedived a decade ago. The treasury of New Jersey took a huge hit because we rely so heavily on the highest earners. Finally, those with means can and do move to states, and they take their jobs, their spending, their philanthropy and their families with them. [emphasis mine]
We'll leave aside the myth of wealth migration and focus instead on the claim that the state is too reliant on the wealthy for tax revenue. There are at least three major problems with the statement above:

1) You must account for local taxes as well as state taxes in any meaningful analysis of tax burdens.

States vary significantly in what revenues for governmental services are provided by the state or by localities. That's why nearly every credible analysis of tax burdens by state combines local and state taxes.

2) Income taxes are only one source of revenue for the state.

States and localities have a variety of ways to collect revenues: income taxes, sales taxes, property taxes, gas taxes, fees, tolls, etc. Isolating income taxes, which tend to be less regressive, will give a false picture of the overall tax burden in a state. (Having a broad mix of taxes, by the way, is a strategy to address the issue of revenue instability due to economic changes.)

The good folks at the Institute on Taxation and Economic Policy have what I believe is the most credible way of comparing total tax burdens across income distributions. Here's their analysis of New Jersey:

The top 1 percent actually have a lower overall tax burden than middle income taxpayers.

3) The top 1 percent pay a big slice of the total income tax revenues because they earn a big slice of the total income!

This one really drives me bananas. According to the Economic Policy Institute, the top 1 percent of earners in New Jersey took 19.7 percent of the total income in 2015. Of course they paid more in taxes -- they made more of the money!

And again: it isn't meaningful to compare the 1-percenters' tax rate on one state tax to taxpayers at other income levels. You have to compare the total state and local tax burden to get to an analysis that's useful.

Here's a crazy idea: instead of giving valuable media space to "political insiders," why don't media outlets instead give the space to people who actually study this stuff carefully and can help citizens understand public policy issues?

Crazy thought, I know...

Jersey Jazzman (artist's conception)

ADDING: Sweet mercy, just make it stop:
Fewer still mention that the top 20 percent of households will pay 87 percent of the 2018 taxes — up from 84 percent in 2017. The bottom 60 percent of households will also pay no net federal income tax for 2018.
Say it with me: the wealthy pay more in income taxes because they make more of the money! And again, income tax is just one part of the total tax burden for an individual.

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