Property Taxes: Corzine Has It Easy

You may have heard that New Jersey Governor John Corzine has called a special session of the New Jersey State legislature to tackle the “intractable” issue of high New Jersey property taxes.  He plans to reduce pensions and benefits for new employees, to offset the cost of the pension enrichment for those cashing in and moving out, and borrowing against the pension funds, passed during the Whitman Administration.  He plans to try to entice, or force, New Jersey’s high-spending school districts to consolidate to cut costs.  And, he plans to raise other taxes, perhaps at the state level, to offset a property tax decline.  Those are tough stands. Compared with the next Governor of New York, however, the fact is Corzine has it easy.

New Jersey hasn’t already slashed wages and benefits for new hires several times, as New York City has, to offset pension enrichments for existing employees; New Jersey’s teachers, police officers, and other key employees are far better paid then those in NYC.  New Jersey has already achieved a degree of funding equity for its poor urban districts; New York State’s school spending is high even though New York City’s is low, because spending in the rest of the state is off the charts, even compared with the Garden State.  More importantly, in New Jersey property taxes are high relative to the national average, but other taxes are low.  In New York State income, sales and property taxes are high, as the table below and the attached spreadsheet show.

The table and spreadsheet show fiscal 2004 state and local taxes, by type, as a share of the income of area residents, based on tax data from the Governments Division of the U.S. Census Bureau and income data from the Bureau of Economic Analysis.  Data is presented for the United States, New York City, the rest of New York State, and New Jersey.  State and local taxes are combined in this table, with State of New York taxes apportioned between New York City and the rest of the state based on personal income.

New Jersey residents, on average, paid a little over 5.0% of their personal incomes in property taxes, compared with a national average of 3.28%.   The property tax burden, relative to income, was also just over 5.0% in the portion of New York State outside New York City.  New York City, despite having a virtually unique local personal income tax (two for the self-employed), was also above the national average in property taxes at 3.59%, although commercial property may cover a higher share of that burden in NYC than elsewhere.

With that local personal income tax, however, New York City residents paid 5.19% of their income in state and local income taxes, well above the national average of 2.22%.  In fact, with (generally) the state income tax alone the rest of New York State was also above the national average in this category  at 3.34% if income.  New Jersey, meanwhile, was below average at 2.05% of income for state and local income taxes.  Jim Florio, they did you wrong.

Nationally, sales taxes are a greater source of state and local revenues than either property or income taxes.  For general sales taxes, the national average is 2.52% of income.  New Jersey, with its famous exclusion of clothing imported from China and purchased in malls, is far below that at 1.73% of income.  While New York’s state sales tax rate is low, it shifts some of the sales tax collections (along with some of the Medicaid costs) to the local level (with more of the tax revenues in the suburbs and more of the Medicaid burden in NYC).  Both NYC and the rest of New York State are slightly above the national average in general sales tax revenues as a share of income, with local sales taxes added in.

For selective sales taxes – the extra taxes levied on specific services like parking and hotels – both New Jersey and the rest of New York State are close to the national average of 0.82% of income.  New York City, with many heavy taxes in this category, is 50 percent higher at 1.2% of its residents’ income.  License taxes are a rarity in New York State.  In both the U.S. and New Jersey they soak up 0.2% of their residents’ income.

New Jersey’s low gasoline taxes are famous.  Motor vehicle fuel and license tax revenues equaled just 0.27% of New Jersey residents’ personal income, compared with 0.57% nationally.    Surprisingly, New York City and the rest of New York State were even lower than New Jersey, perhaps because of a smaller number of licenses and gallons of gasoline available to be taxed.  Adding it up, however, sales taxes are below the national average as a share of income in New Jersey, slightly below average in the rest of New York State, and above average in New York City.

New Jersey is above average in one tax besides property:  corporate income.  At 0.52% of the income of New Jersey residents, this source brings in more than the 0.35% of income national average.  New York City, which has a local corporate income tax as well as the state corporate income tax, is four times the national average relative to its residents’ income, despite all the tax breaks it hands out.  That is because the employees of those corporations, many of whom commute in from the suburbs, are better paid and presumably generate more corporate income that NYC residents themselves.  Interestingly, the rest of New York State was below the national average in corporate income taxes as a share of income in FY 2004.  If that led to a corporate boom, I haven’t seen it.

In short, Governor Corzine can raise income and/or sales tax revenues, either by raising rates or cutting breaks, and still be below the national average in those categories, let alone New York State.  One can make the case that the taxpayers of New Jersey have had it too good:  those low gas taxes are associated with a bankrupt transportation fund.  Moreover, while in both states public employees grabbed enriched pensions and governments cut taxes by not contributing enough to the funds, in New York the public employees get the majority of the blame for the pension hole, in New Jersey it is the taxpayers.

And think of the steps New York State has already taken, which might be associated with lower property taxes:

• Above average income and sales taxes, check.
• Lower compensation for future employees, who are then less qualified and motivated and produce worse services, double check.
• Restrain the spending growth in high spending school districts?  Well, New York State used its education funding system to push down spending lower spending NYC schools instead.

Even after all this, property taxes are still high in the portion of New York State outside New York City, and the total tax burden is even higher in the city.  Now what?  (I have my own opinions, which I will share in the fall).