Study calls Jersey a taxing place to call home

The $1.9 billion worth of tax increases in the state's new budget represents a 5 percent increase over last year, far outpacing any other state, according to a study by the National Conference of State Legislators.

New Jersey now has the highest state sales tax, tied with three other states, at 7 percent. Its cigarette tax now leads in the nation. And, of course, this all comes on top of the nation's highest average property taxes.

It's no wonder people like Donley Kuendel are thinking of leaving.

"The quality of life is going down about as fast as taxes are going up," said Kuendel, 50, of Atlantic Highlands. He and his wife are looking at houses in Delaware, where there is no sales tax, no income tax and property taxes are relatively low.

He's not much impressed by the Legislature's current efforts to come up with tax-cutting plans.

"I just can't see how you are going to get relief in this state," he said.

The National Conference of State Legislatures report found the national trend is toward keeping state tax increases at a minimum, or even cutting them. South Carolina and Texas this year raised taxes a little more than 1 percentage point; five states (Arizona, Nebraska, Oklahoma, Utah and Wyoming) cut taxes by more than a penny on each dollar. The rest made only slight changes.

The bulk of New Jersey's tax increase came in the sales tax, which -- after a battle that temporarily shut down state government before lawmakers agreed on the $30.8 billion spending plan -- was raised from 6 percent to 7 percent. That puts New Jersey in a four-way tie with Mississippi, Rhode Island and Tennessee for the highest state sales tax rate. (California charges 7.25 percent, but 1 percent goes to municipalities.)

The new $2.575 per-pack tax on cigarettes puts New Jersey ahead of all other states, although California voters will be asked this fall whether to raise that state's tax to $3.47.

Other data provided by the Americans for Tax Reform and National Governor's Association show no state has boosted taxes more than the $5.2 billion enacted by New Jersey in budget years 2002 through 2007 -- a per capita increase of $596. Our big next-door neighbor, New York, raised taxes $4.6 billion during that period, or $240 per person. Only Alaska, with its small population, had a higher per capita increase, $699.

Senate Minority Leader Leonard Lance (R-Hunterdon), who believes far more must be done to clamp down on spending and taxes, said the impact is not surprising.

"Businesses are fleeing New Jersey as well as residents, and it's very discouraging," he said.

In pushing for the increases in sales and other taxes this year, Gov. Jon Corzine said they were necessary after years of borrowing and other gimmicks to patch up deficits. He repeatedly stressed the need "to get recurring revenues, the money coming in, to match the money going out."

Anthony Coley, his spokesman, said the governor hopes New Jersey's economy will rebound and he may be able to cut taxes in the future. Meanwhile the Legislature has set up four joint committees to develop a comprehensive property tax reform plan.

Corzine has expressed a strong reluctance to raise the state income tax, which currently has the nation's seventh-highest top rate, 8.97 percent. He has steered away from adding to taxes on business, and in fact cut about $300 million worth.

The former Goldman Sachs executive is sensitive to the fact that New Jersey is seen as a high-cost state in which to do business. A recent report by the Tax Foundation, a nonpartisan tax research group based in Washington, D.C., rated New Jersey as having the second worst tax climate for business.

Overall, the Tax Foundation ranked the state and local tax burden on New Jersey residents 17th in the nation for the past year. That's down from an all-time high of ninth after former Gov. Jim Florio's 1990 tax increases took effect, but far above its 33rd place back in 1970 when the foundation began its rankings.

There are some factors that lessen the tax impact on New Jersey residents.

• On average, they have more money. Census data shows New Jersey had the third-highest per capita income in the nation last year.
• New Jersey residents can deduct their property taxes from state income taxes.
• The state hands out rebates as large as $1,200 to elderly and disabled homeowners and freezes property tax bills for low-income seniors.
• Towns in New Jersey cannot collect their own income or sales taxes -- although that's one of the ideas lawmakers are considering as an alternative to higher property taxes.
• There's no sales tax on clothing or food.

"The burden isn't as great as the rates would suggest because you have to see who pays what," said Jon Shure, president of New Jersey Policy Perspective, a liberal think tank.

But the overall tax burden is not distributed according to income. Shure said property taxes are "crushing on low and middle income households. They feel it every time they pay their mortgages every month. It's noticeable, and it's high."

There is one tax that's very low in the Garden State: the gasoline tax. The Federation of Tax Administrators says New Jersey, at 14.5 cents per gallon, has the third-lowest state gasoline tax in the nation.

For now.