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Manhattan Institute

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Special Report: Connecticut's Fiscal Crisis Is a Cautionary Tale for New Jersey

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Special Report: Connecticut's Fiscal Crisis Is a Cautionary Tale for New Jersey

October 16, 2017
Urban PolicyTax & Budget

Abstract

Editor's note: This report was written by Stephen Eide and published by the Garden State Initiative (GSI), an independent, free-market research and educational organization dedicated to making New Jersey once again a place where families and businesses can thrive. Find the report on the GSI website.

New Jersey’s 2017 election will result in the first change in gubernatorial leadership since the Great Recession. But the next governor will not be starting out with a blank slate. Many issues that have raged over the past decade, especially taxes and retirement benefits, are unresolved. And when state officials take office in January 2018, they will have to walk a tightrope between expanding government services—what many voters favor—and curtailing runaway costs. Campaign promises are certain to collide with fiscal reality.

Whatever course Trenton takes, it can learn a lesson from its peer states. Connecticut, in particular, has a similar social and demographic profile, and it faces similar challenges: severe pension underfunding, a high tax burden, and politically powerful government unions. Unlike New Jersey, however, Connecticut has taken a more consistently “big government” approach to fiscal policy. The state enacted three major tax increases since 2009—yet its pension system remains deeply underfunded, its budget deficits are unabated, and its economy has posted one of the worst track records of any state in recent years.

In New Jersey, many state officials and candidates for office believe that the state’s fiscal struggles can be alleviated through higher taxes and healthy economic growth rates. That is precisely the combination that Connecticut has not seen over the last several years. For those who think that New Jersey’s budgetary challenges are rooted in inadequate levels of taxation, Connecticut provides a cautionary tale.

READ FULL REPORT

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Stephen Eide is a senior fellow at the Manhattan Institute

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