Want To Use A Tax Cut To Help The Economy? Focus On Retirees, Not Millionaires

It’s a simple choice of whose priorities rank higher: Millionaires or retirees.

I’m willing to line up with the retirees. Tax cuts for millionaires will not make any appreciable difference in our economy or make New Jersey more affordable. Giving middle-class retirees a tax break can do both.

Governor Christie has given us more than an inkling of where he stands. In his state of the state address, the Governor kicked of his 2011 agenda by saying the budget he will propose next month will include a call for “comprehensive tax reform.” And for the past several months, he has made it no secret that his desire is to cut income taxes for the wealthiest New Jerseyans by 30 percent. It’s easy to read where he’s going.

Instead of simply trying to make New Jersey a haven for millionaires, our focus should be on keeping middle-class seniors here. If the Governor wants to really shake things up, he should be cutting income taxes for retirees.

And he has a chance to do just that. On his desk now is legislation I sponsored with Assemblywoman Celeste Riley to allow seniors whose total earnings fall under $100,000 to be exempt from paying taxes on any income from a pension or deferred compensation plan – a change that would put New Jersey on par with Pennsylvania, which is one of only three states (Illinois and Mississippi being the others) to have a similar retirement income tax-exemption. It should be signed into law now.

The Governor has argued that New Jersey should have a tax code as friendly as neighboring Pennsylvania, which has a three-percent flat-tax for all earners. But the Governor’s premise is flawed, as Pennsylvania’s perceived tax advantage actually falls only to the very, very wealthy.

Even for all the perceived flaws in our tax code, more than 80 percent of New Jersey residents actually pay less in state income taxes than they would if they moved across the Delaware River; according to the latest state Division on Taxation data, the average tax filer in New Jersey reported $81,081 in income in 2007, and paid at the same tax rate they would in Pennsylvania. This is not even taking into account the city income tax in Philadelphia – where people would need to earn a phenomenal $865,000 before New Jersey loses its income tax advantage – or the separate income taxes Pennsylvania towns can impose that are prohibited here.

Offering a modest tax cut to middle-class retirees could mean the difference between staying in New Jersey or pulling up stakes and moving elsewhere – including Pennsylvania, where that tax advantage is real. We’ve seen enough of our neighbors move, and it’s not always just for better weather.

Our proposal is also based on the simple notion that seniors are an essential part of their local economies. Communities across the country have learned first-hand that retirees are more likely to spent locally, helping small businesses – it’s no accident that the planned communities that have been poaching New Jersey’s seniors for years are built more like small towns, rather than bland housing developments.

There is no guarantee that giving the rich a tax break means they would go out and spend their newfound extra money in local stores. Certainly, some of the more adventurous and risk-averse may pour their largesse into new business ventures, but, more likely than not, they would probably just keep it in the bank to generate additional wealth. If the Governor’s argument is that cutting the highest tax bracket will lead to more jobs or help small businesses, the reality is that CEOs don’t decide to hire more people because they got a personal income tax cut.

Put into more personal terms, it becomes a question of which is the worthier cause: keeping New Jersey affordable for retirees, or giving a $10,000-plus tax cut to a millionaire.

Allowing seniors to stay here for the long-term instead of taking their retirement savings elsewhere will benefit our economy far more than another tax break for the rich. New Jersey’s millionaires have already gotten one $600 million tax cut under Chris Christie’s watch, and that’s more than enough for the time-being.

Senate President Sweeney, a Democrat, represents the Third Legislative District (part of Gloucester and Cumberland counties and Salem County).