NEW JERSEY CUT $347 MILLION GOV. CHRISTIE
In New Jersey, for instance, Gov. Jim McGreevey hiked taxes and fees some 33 times, a total of $3.6 billion in new taxes, from 2002 through 2004. Then his successor, Jon Corzine, increased taxes by $1.2 billion in 2006 after a showdown with the legislature that shut down state government. Neither of those moves did much
to solve the state’s decade-long bud- get woes, and in 2009 Jersey voters elected Chris Christie. In 2010 Christie blocked eff orts
by the Democratic-controlled legisla- ture to extend a temporary income tax surcharge on wealthy residents, in eff ect cutting the income tax by $600 million while reducing state spending
by 8.6 percent to balance the bud- get. Last year Christie signed into law some $347 million in business tax cuts, including a reduction in the minimum tax paid by subchapter S corporations. Of course, advocates for raising
federal taxes point out that the land- scape is far diff erent in Washington than in many states. The federal gov- ernment has accumulated $16 trillion in debt and a $1 trillion dollar defi cit that threaten the country’s future. Yet one of the dangers we face is
that Washington will repeat the mis- takes of some tax-raising states, which chose to boost the burden on citizens without enacting fundamental spend- ing reforms at the same time. In January of 2011, for instance,
Illinois raised income and corporate taxes a total of $6.5 billion to address its defi cit and a backlog of unpaid state bills, but it did nothing to restrain the growth of its expensive Medicaid sys- tem or reform its pensions. Last year Chicago’s Civic Federa-
tion estimated that about two-thirds of the Illinois tax increase was being con-
sumed by higher state pension costs alone, leaving the state with continu- ing budget problems. California appears headed in the
same direction. In November Cali- fornians voted to raise the state’s sales tax along with income taxes on wealthy state residents a total of near- ly $7 billion. But the state has enacted only modest pension reforms that don’t save much money and hasn’t trimmed its expensive Medicaid pro- gram, whose costs are squeezing the state budget. Prominent California Democrat
David Crane, a former economic adviser to Gov. Arnold Schwarzeneg- ger and a lecturer now at Stanford Uni- versity, argued that raising taxes with- out fi rst reining in spending is fruit- less. “A tax increase without reform would be lethal,” Crane maintained in an Op-Ed piece in the Sacramento Bee. But that’s what Californians have gotten.
Steven Malanga is a Manhattan Institute senior fellow, and senior editor of City Journal. This story is reprinted with permission.
Businesses Flee California Tax Hikes T
axes in california have reached such heights that other states are launching a major push to lure
fi rms away from the Golden State at a furious pace. The Wall Street Journal recently reported that other
states are increasingly full-time recruiters in California. Their job: win the interstate battle for jobs. In 2011, for example, the logistics company Replico
Corp. left the San Jose area for greener pastures in Reno, Nev. “California is not a business-friendly state,” Replico CEO Michael Whitehead told the Journal. Although California’s employment market has been far-
ing well the past few years, with jobs increasing at almost twice the national rate, much of the increase refl ects the bounce back from the real estate crisis that hit California especially hard. In fact, a 2012 study by Chief Executive magazine found
that business leaders consider California the least business- friendly state in the nation. It was followed by New York,
Illinois, Massachu- setts, and Michi- gan as the toughest states on business. Texas ranked No. 1 as most business- friendly, followed by Florida at No. 2. The recent spike
Worst for business: 1. California 2. New York 3. Illinois
4. Massachusetts 5. Michigan
in Golden State taxes hasn’t helped California’s business climate. In November, Californians elected to raise taxes on the state’s wealthiest citizens. They also voted to end a loophole that enabled some multistate cor- porations to pay less taxes on their sales in California. The Public Policy Institute reports that between 1992
and 2006, only 2 percent of California’s job losses occurred due to companies moving elsewhere.
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