Unionized pubic employees swarmed Trenton on Saturday to protest Gov. Chris Christies cuts in the state budget and his “Cap 2.5” proposal to limit local property taxes. The unions warn that a tax cap will lower the quality of the Garden States public services, such as schools. Is that right?
For the answer, we can look at Massachusetts, which enacted a similar property tax reform back in 1980. As I discuss in a report out this week from the Manhattan Institute and the Common Sense Institute of New Jersey, that reform has led to slow growth in taxation and spending compared to other states.
But Massachusetts is the clear national leader in educational outcomes, showing that a well-designed property tax cap can constrain taxes and spending while maintaining high-quality government services.
Massachusettss Proposition 2.5 limits any towns property tax levy increase to 2.5 percent per year, unless voters approve a greater increase. At enactment, Massachusetts had the countrys second-highest property taxes per capita. But since then, property tax growth has been slow just a 22 percent rise in real terms from 1980 to 2007, compared to 68 percent nationwide and 102 percent in New Jersey.
This reform has allowed Massachusetts to shed the “Taxachusetts” label. In 1980, its residents faced the second highest state and local tax burden in the country. But because Proposition 2.5 effectively controlled property tax growth and because legislators responded to the drop in revenues by restraining spending and not just raising other taxes Massachusetts has fallen from the second-most taxed state to 23d.
Meanwhile, New Jersey taxes have kept rising, and New Jersey residents have the dubious distinction of paying more of their incomes in state and local taxes than people in any other state, according to the Tax Foundation. Christie is saying he wont raise taxes anymore and that Massachusetts shows thats not necessary.
There are two usual criticisms of property tax caps, and oddly, they run in opposite directions. One is that they starve government of needed funds, reducing the quality of public services. The other is that they fail to constrain growth in government, because other taxes rise to offset the capped tax. Neither applies to Proposition 2.5 or its New Jersey clone.
On the first point, it is hard to call Massachusetts a state where government has been cut “to the bone.” The primary purpose of property taxes in both Massachusetts and New Jersey is to fund schools, yet Massachusetts consistently posts the countrys best educational outcomes on the National Assessment of Educational Progress exams administered by the Department of Education.
While New Jersey also scores above the national average, it consistently ties or (more often) trails Massachusetts overall and within most demographic groups, including both black and white students. This is despite the fact that New Jersey leads the country in education spending, outspending Massachusetts by 26 percent per pupil. Massachusetts has demonstrated that you do not need to be the top spender to be the top achiever in public education.
On the second point, a property tax cap alone does not shrink government. New Jersey residents have good reason to be wary, since theyve been repeatedly promised property tax relief to no avail. Even when New Jersey first adopted an income tax in 1976, its stated purpose was to relieve property taxes.
Today, New Jersey ranks eighth in income tax collections per capita, which should be paying for a lot of property tax relief yet property taxes are the highest in the country.
Christie recognizes these past failures, and would pair his property tax cap with a “tool kit” designed to help localities provide quality services while spending less money. Particularly, he would roll back civil service rules that drive up local spending. He would also reform binding arbitration rules that have pushed employee salaries and benefits skyward in defiance of the weak economy.
New Jersey does not need to emulate Texas or South Dakota to provide significant tax relief. The recovering taxaholics in Massachusetts have shown a path for a wealthy, northeastern state to tax and spend somewhat less, improve competitiveness, and maintain high quality public services. Its a much more appealing choice than yet another round of tax hikes for New Jersey.
Original Source: http://blog.nj.com/njv_guest_blog/2010/05/tax_cap_proved_its_worth_in_ma.html