Neighborly Advice

The state's economic woes have been well-documented here at NJ Business Matters, and the result of Trenton's attempt to tax its way into prosperity has been predictable: fewer job opportunities and the slow hemorrhaging of our most productive citizens to other states.

Today, Manhattan Institute fellow Steven Malanga uses New Jersey as a prime example of what New York should avoid as their legislature works through an Empire State downturn. On why New Jersey has struggled to reform its wayward policies, Malanga writes,

Despite the constant stream of bad news, reform has been difficult because the kind of big-government, tax-consuming politics ruining Jersey have given too many residents a stake in the system.

The rapid growth of state and local government - whose employment increased by 15 percent from 2000 through 2006 alone - has created a huge public work force not about to vote for eliminating its perks and benefits.

Meanwhile, the state's recent tax increases have fallen almost entirely on upper-income residents, so that those earning more than $200,000 a year (just 4.9 percent of households filing tax returns) are paying 60 percent of all income taxes. Jersey has even managed to make its onerous local property-tax system progressive by instituting a state rebate program - but only for those earning below certain incomes.

The effect of all of this is to make Jersey a place where businesses and a few residents pay the freight. So many people are on the public dole that reform becomes virtually impossible.

But such a system can't sustain itself long as businesses balk at expanding, some shrivel (like the newspapers) and declining job opportunities stifle growth. That's why New Jersey now lurches from crisis to crisis.

During the debate on paid family leave, business groups warned the legislature that the mandate would be bad for business and that the mistake would only be amplified during an economic downturn. In response, we were told that maybe Jersey was just late emerging from the 2002 recession (which we never really did) and that the cyclical nature of the economy would eventually boost it.

It doesn't work that way. There is no law of nature that requires boom times to always follow a slowdown. The only way the legislature can improve the situation is to create a low tax and regulatory environment, and then allow businesses and citizens to create wealth. All the incentive programs, subsidies, and property tax rebates ever devised are not enough to overcome a tax code that ultimately punishes success.

Consider it friendly advice, New York.