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| American Enterprise Institute
The Legal Corruption Series: Executive Summary
New Jersey is in a bad way. Our economy is weak and significantly underperforms other states. Our tax system is consistently ranked as the worst in the nation. Our public-sector pensions are in the worst condition of any state, and our unfunded liabilities are at least $202 billion—almost six times the size of the $35 billion annual budget.1 We have the second-lowest bond rating of any state—save broke Illinois.2 Businesses, taxpayers, and young adults are leaving our state in droves. Sadly, New Jersey’s future looks even worse.
How did New Jersey get into this position?
It was not happenstance. New Jersey is in this position because its largest public-sector union, the New Jersey Education Association (NJEA), often working in concert with its public-sector union allies, has rigged the system for its own benefit. The consummate special interest, the NJEA has dominated the state’s political system for decades. It structured a legislative regime that allowed it to siphon off hundreds of millions of taxpayer dollars to spend itself to unmatched political clout. Predictably, New Jersey’s politicians—both Republicans and Democrats—have succumbed to this clout and largely given the NJEA what it wanted. Too often, New Jersey citizens and taxpayers have been left out of the discussion, and yet it is they who will foot the bill.
If New Jersey citizens and taxpayers knew what was really going on, they would be outraged. They would be outraged that a special interest was able to control state government to their detriment. They would be outraged that their highest-in-the-nation taxes are flowing directly into union coffers to be used against their own interests. They would be outraged that the future of the state—and that of their children and future generations of New Jerseyans—has been mortgaged for the benefit of the few over the many.
The purpose of this research is to inform New Jersey’s citizens of what is really going on and how we got into this position. Using published research, contemporaneous media accounts, and the NJEA’s own publications to ascertain the facts, this study details the deliberate exploitation of New Jersey’s political system and the resulting consequences—to the benefit of the NJEA and the detriment of New Jerseyans.
There are five parts to the research:
New Jersey citizens and taxpayers must wake up to what has happened in our state and why we are where we are. In the end, the best description of what has occurred is “legal corruption.” Our political system has been thoroughly corrupted—so much so that the corruption itself has been made legal. Either we change the system and root out the legal corruption or it will bankrupt the state—along with the future of our children and the next generations of New Jerseyans.
“N.J. had the highest property taxes in nation in 2016 (again),” blared a recent Newark Star-Ledger headline.3 This surely came as no surprise to New Jersey taxpayers, many of whom reside in the seven New Jersey counties that rank in the top 10 counties nationwide for highest property taxes.4
But it is not just property taxes that are high in New Jersey. In its 2017 report, the Tax Foundation ranked New Jersey as the worst tax climate in the country—for the third straight year. The state ranked last for property taxes, in the bottom three for income taxes, and in the bottom 10 for sales and corporate taxes.5 In dollar terms, WalletHub found that New Jersey has the highest absolute state and local tax burden in America at $10,969, a full 60 percent higher than the combined tax burden on the median US household of $6,855.6
Why Is New Jersey Such a High-Tax State?
One common answer is that New Jersey has 585 municipalities, 611 school districts, and 21 county governments, and these overlapping layers of government drive up costs. Certainly, redundancies, overstaffing, and other factors associated with bureaucratic creep play a role, but research has shown that they are not significant drivers of New Jersey’s sky-high taxes.7
The real answer is simpler: The single biggest driver of New Jersey taxes is the cost of public education, which is by far the largest portion of a resident’s average annual tax bill. School-related property and income taxes make up more than 40 percent of the average tax bill—almost three times the next-largest source of taxation.8 New Jersey Education Association (NJEA) President Michael Johnson stated the obvious reality: “Our salaries and the funding for education programs and services comes from one source—tax dollars!”9
In their study of New Jersey, Eileen Norcross and Frédéric Sautet of the Mercatus Center concurred: “The progression of tax policy and spending in New Jersey reveals that much of this system evolved due to the political pressures applied by interest groups to increase spending in certain areas, in particular education.”10 By relentlessly pursuing higher education spending, the NJEA—through both its local collective bargaining monopoly and its unmatched state-level political clout (described in Parts I and II)—has been a constant and powerful driver of higher taxes in New Jersey.
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