Posted on 12/09/2008 2:08:38 PM PST by Coleus
There is no shortcut to economic prosperity. It takes investing, which means money.
Jon Shure is president of New Jersey Policy Perspective, a non-partisan, non-profit organization in Trenton that conducts research on state issues. IF YOU FIND yourself at the bottom of a deep, deep hole, which would you rather have: a ladder or a shovel?If you said ladder, congratulations on having a firm grasp of the obvious. If you said shovel, you have lots of company in Trenton. With state government's tax receipts already dropping off because of the national recession, policymakers are hard at work making the hole even deeper.Specifically, what the governor and legislators are working on are changes in the state's method of levying taxes on businesses – changes that will cost a few hundred million dollars yearly in lost revenue. Back in the 1950s, states got together to bring some consistency to taxing multistate businesses. The Uniform Division of Income for Tax Purposes Act in essence divides the profits of multistate corporations among all states where the corporations earn a profit.
The rationale is straightforward:
a) It's unfair for the same income to be taxed by more than one state and,
b) It's equally unfair if companies can work the system so their income is untaxed by any states. They call that "nowhere income."
This happy medium existed for decades until it started to break apart as states, often under pressure from large companies, took their tax codes in different directions. To simplify it, New Jersey today collects taxes from some companies located in this state on their profits earned from sales made in other states. These are profits that, for various reasons, can't be taxed in those states. The result of New Jersey's policies is to help make sure that companies pay tax on all their profits – no more, no less. New Jersey's law operates by means of two provisions: sales "throwout" and the "regular place of business" requirement.
The throwout rule is a mechanism that assigns to New Jersey what would otherwise be nowhere income earned by New Jersey companies in states that don't tax it. In having such a rule, New Jersey has chosen to cooperate with other states to ensure that corporations don't have nowhere income. The regular place of business requirement states that a company from New Jersey selling in other states must have an actual office, factory, warehouse or other regularly maintained facility there in order to avoid having profits made in that state subject to taxes in New Jersey. Now, new legislation would eliminate the throw-out rule and regular place of business requirement.
Another change in the works would base New Jersey's taxes only on a company's sales within the state. Today, sales are counted along with the value of a company's facilities in the state and its payroll. Going to a "single sales" formula lowers taxes for some companies and raises them for others, but the way the math works, it's a net loss for the state treasury. What does the state of New Jersey get in return for giving up this revenue? Good question. Unfortunately, it wasn't being asked by legislators at any of the recent hearings on these proposals. Supporters of the tax changes say they will help to combat the perception that New Jersey's business climate is inhospitable. They say the result will be more jobs: Companies in New Jersey will be less likely to leave, and companies not in New Jersey will be more likely to come.
If you agree with that assessment, you do so on faith alone. There is no significant research to show that such changes in business tax rules have a major impact on decisions made by companies as to where to locate. If you look at state-by-state statistics of job gain and job loss and try to correlate the numbers with whether states do or don't have the tax policies we're discussing today, it will be in vain. There is no correlation. But the pressure is strong. No one liked hearing in October that New Jersey ranks 50th in the nation in state business tax climate — the latest version of a complaint that business advocates have repeated for more than a generation. But a closer look at that rating from the Tax Foundation calls the exercise into question. The group admits in its report that there are "many other non-tax factors that affect a state's overall business climate: its proximity to raw materials or transportation centers, the quality of its education system and the skill of its workforce…"
Now, those are categories where New Jersey does well. But the Tax Foundation chooses not to include them, saying it only ranks things under the control of elected officials to change rapidly or at all. The logic is twisted: Let's only measure tax-related areas that legislators can quickly act upon while we ignore other very important areas that just happen to cost money – money that states will have less of if they enact the tax changes that will help their business climate rankings. Moving up in those rankings will cost New Jersey more than it can afford.
Do we really want to play this game? There is no shortcut to economic prosperity. It takes investing. And, like it or not, that costs money. The current economic crisis will mean New Jersey has less money to spend just when it's needed most. Tax cuts will only make a bad situation worse, trading badly needed revenue for nothing even resembling an assurance that any substantive benefit will result. In other words, it's time for ladders, not shovels.
Jon Shure is president of New Jersey Policy Perspective, a non-partisan, non-profit organization in Trenton that conducts research on state issues. >>>
non-partisan, yea right.
Braindead morons. You cannot tax yourself into prosperity. You suck money out of the system. IDIOTS! ALL OF THEM!
That would be correct. However stealing money from people and then giving it back to them in the form of government handouts is not investing.
Somebody should explain to this knucklehead how prohibitive tax RATE can reduce overall economic activity leading to reduced OVERALL revenue. But then explaining Econ 101 to a person making “ladder vs. shovel” analogies is probably a waste of time.
Yeah, TAXING OUR WAY INTO PROSPERITY will do it every time.
And NEVER, EVER consider reducing GOVERNMENT SPENDING.
That wouldn’t make sense to the crooks that run New Jersey. They tax the crap out of us. We get nothing in return and they line their pockets.
Yeah...that’s the ticket. New Jersey needs to tax its way to prosperity. After all why try something different?
I only have one question. Who funds this “non-partisan” think tank and the brain dead idiot who runs it?
It takes investing [bureaucrats enriching political buddies], which means [other people’s] money.
A few months ago, Hoffman La Rouche found it CHEAPER to move their headquarters to San Francisco than stay in NJ. Later the rest will follow. They've been here for over 100 years. Companies are tired of being abused - via taxes.
Corzine is insane. I don't understand native New Jerseyans. WHY do they keep voting for these crooks? It's incredibly corrupt here.
Corzine has been trying to sell out debt. No one wants it and yet I'm supposed to “invest” with them?
LOL!
Told him to forget. Unlike NJ we can't tax our way to prosperity or like the government - print more money. If that collapses the creditors would be ahead of us - no way.
In his analogy he needs to realize that government is the shovel.
yes, that is what is happening right now. we lost over 70,000 people who moved out because of the high cost of living only to be replaced by illegal aliens and legal immigrants.
I remember reading an article posted on FR about the history of NJ economy. How in the 1920s through the 1970s, it was a great place to raise a family and escape the high taxes of NY. That’s where all the Wall Street execs lived, was in NJ. If someone can find that article I’d appreciate it. I even googled for it but couldn’t find it.
That article was from City Journal. I took issue with many of the points of the article, as NJ (at least in the urban areas) was far from idyllic.
The Liberals have stolen the language, because “government spending” is now always referred to as “investing.”
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