By Terrence Dopp
January 18, 2012

Jan. 18 (Bloomberg) — New Jersey Governor Chris Christie proposed a 10 percent income-tax cut yesterday without saying how he’d address the gap in lost revenue that Democratic lawmakers said might top $1.1 billion.

The reduction would begin in January 2013 and be phased in over three years. The new rates will lead to “better lives for our citizens and more jobs for our state,” Christie, a first- term Republican, said in his State of the State speech.

“Let others choose tax increases,” Christie said. “We choose responsible tax cuts.”

Christie, 49, was silent on how the cut would be financed. The governor said the budget he submits next month “will be truly balanced,” and that the state needs to continue to “hold the line on spending.”

Kevin Roberts, a spokesman for Christie, said the cost of the income-tax cut, and how the governor would pay for it, will be part of his budget message.

Christie also said he wants to restore an earned-income tax credit for New Jersey’s working poor, which he said he was forced to cut in 2010 “when growth was gone and we had no money.” The reinstatement also would take effect in 2013.

California, New York

Christie’s budget for fiscal 2012, which ends June 30, forecast income-tax collections of $11.1 billion, out of total revenue of $29.6 billion. A 10 percent cut of that amount would cost $1.1 billion, reducing overall revenue by 3.7 percent.

While other states, including California, Connecticut, New York and Illinois, are raising taxes, New Jersey has to “show a different direction” in order to compete, Christie said.

Christie has twice vetoed measures sponsored by Democrats, who control both houses of the Legislature, that would have raised income taxes on residents earning $1 million or more.

If New Jersey had enacted a tax overhaul similar to the one signed last month by New York Governor Andrew Cuomo, every person earning less than $100,000 a year would face a tax increase of 150 percent to 200 percent, while those earning more than $1 million would get a tax cut, Christie said.

“Is that what we want?” Christie said. “Is that fairness?”

Josh Vlasto, a spokesman for Cuomo, a first-term Democrat, didn’t respond to a call and e-mail requesting comment on Christie’s speech.

Tax Rates

New Jersey’s income-tax rate ranges from 1.4 percent for residents earning $20,000 a year or less, to 8.97 percent for those earning $500,000 or more, according to the Treasury Department. The state had the seventh-highest state income-tax burden in a ranking of 2010 collections per capita by the Washington-based Tax Foundation.

Income-tax collections this fiscal year through November totaled $3.2 billion, which is 7.6 percent above year-earlier collections and 1 percent above projections, the state treasury department said last month. New Jersey’s income-tax collections reached a peak of $12.6 billion in 2008 before dropping to $10.3 billion in 2010.

Democratic lawmakers said Christie’s tax cut would favor the wealthy. While a person making $50,000 would get an $80 break under the governor’s plan, someone earning $1 million would save $7,200, said Assembly Speaker Sheila Oliver, a Democrat from East Orange.

“This is a B.S. tax cut,” Senate President Stephen Sweeney, a Democrat from West Deptford, told reporters after the speech. “This is another windfall for multimillionaires at the expense of schools, because that’s where the money comes from when you cut taxes.”

Whitman Tax Cut

After former Governor Christine Whitman, a Republican, followed through on a 1993 campaign pledge to reduce income taxes by 30 percent, lawmakers made budget cuts, and local governments across the state raised property taxes to replace the lost aid, Oliver said.

New Jersey is the second-richest state in the U.S. after Maryland, with median household income of $70,378 in 2008. It has the nation’s highest property taxes, averaging $7,576 in 2010, according to the state Department of Community Affairs. The levies, the main source of funding for schools and towns, have climbed 70 percent in the past decade.

“One of the reasons we’re in the shape we are in today is because that much revenue was taken out of the income stream,” Oliver said. “We can’t return to that.”

Whitman, who was governor from 1994 to 2001, said her tax cut “was good for both citizens and the state.” During her administration, per-capita income rose, the unemployment rate declined, the budget had a surplus and state bonds were upgraded, Whitman said in a statement e-mailed by her spokeswoman, Heather Grizzle.

Democrats Push Back

Democrats said they will seek to protect lower and middle- class taxpayers. Millionaires are “a protected class” under Christie, Sweeney said.

Christie, the first Republican elected New Jersey governor since 1997, saw his stature in the national party rise weeks after taking office in January 2010. He froze $2.2 billion in spending to close a midyear deficit, and then cut $10 billion in projected new spending for schools, pensions and towns.

Sweeney and other Democratic leaders have vowed to fight harder against Christie, who is halfway through his first term with near-record approval ratings. Democrats’ 2012 priorities are passage of a so-called millionaire’s tax, same-sex marriage and an increase in the minimum wage, Sweeney and Oliver said. Christie, during an interview today on 101.5 FM radio, said he won’t agree to any tax increase.

Slim Budgets

Daniel Solender, head of municipal bonds at Lord Abbett & Co. in Jersey City, said he wants to know how Christie will fund the cuts and whether he will base them on anticipated economic growth. After paring budgets in his first two years, it remains to be seen which programs the governor can trim in order to find the savings he needs, Solender said.

“Tax cuts always sound positive to the people who live in the state, but the question is how you pay for it,” said Solender, whose firm oversees $15 billion in municipal bonds. “At some point, there’s going to be a lot of resistance, and it’s directly opposite of what the other party wants.”

Christie had 53 percent approval among New Jersey voters in a Quinnipiac University poll released today and has been campaigning for presidential candidate Mitt Romney after deciding against his own White House bid last year.

2013 Election

Patrick Murray, director of the Monmouth University polling institute, said the differences between Christie and the Democrats are a taste of the 2013 elections, when the governor and the entire Legislature will be chosen. In the meantime, the competing priorities may lead to gridlock in Trenton, he said.

“It’s not all about the 2013 gubernatorial election –it’s probably 75 percent about the 2013 gubernatorial election,” Murray said. “It’s not to say both sides wouldn’t like to see these things happen, but the reason they’re being proposed right now is all about looking ahead and trying to score a victory.”

A year ago, Christie used his first State of the State speech to urge lawmakers to “do the big things,” which he said were maintaining fiscal discipline, overhauling public education and reducing the costs of pensions and benefits.

While Christie has won passage of measures to raise public workers’ costs for pensions and benefits and put a 2 percent cap on property-tax growth, other proposals, including an education overhaul and an end to employee payouts for unused sick time, have stalled.

Christie, who called 2011 “the year of education reform,” was unable to win passage of measures to offer privately funded vouchers to students from poor families, institute merit pay for teachers and make it easier for administrators to fire educators deemed to be inadequate.

The governor yesterday again urged lawmakers to pass those proposals, saying education was a top priority for 2012.

“These are not radical reforms; they are common sense,” Christie said. “They are not rash; they are long overdue.”