The Boom, Bust and Tax Cycle

New Jersey’s unemployment insurance (UI) fund is now "dangerously close to insolvency” because lawmakers have diverted the money to reimburse hospitals for treating the uninsured.

The state has taken $4.67 billion from the UI fund since 1993, leaving it with a projected balance of about $1 billion on March 31, an amount barely above a mandated trigger that would automatically increase unemployment taxes on employers by as much as $400 million.

If that trigger isn't reached this year, Corzine's group predicted it will almost certainly occur in 2007 when unemployment taxes on employers might have to increase as much as $700 million.

Corzine's advisers suggested unemployment tax increases for employers and employees are inevitable.

Gas taxes were diverted from the state’s transportation fund, the fund is now broke and there’s no money for future road construction and maintenance. Unemployment insurance taxes paid by workers and employers were used by politicians in to pay medical bills for the uninsured and now the UI fund is near insolvency.

This is what happens when government takes in surplus taxes in ‘good years” - politicians spend the money on new programs, pet projects or the usual special interest groups. When the ‘bad years’ come and tax revenue is down, the knee-jerk reaction by politicians is to raise taxes. This cycle is repeated over and over again and not just with the unemployment and transportation trust funds.

The state’s income tax revenue is solely dedicated to New Jersey’s Property Tax Relief Trust Fund. The ‘good years’ came and the Abbott School Districts were lavished with money to the point were schools in these districts spend 35 percent or more per student than their non-Abbott counter parts. The ‘bad years’ came and the property tax relief (state aid) to the Abbott schools continued at the same generous levels, while property tax relief (state aid) to the others districts declined and rebate checks were cut. Now the cry is to raise taxes, again.

Before passing laws to raise taxes, lawmakers should pass laws mandating transportation and unemployment trust fund tax revenue be used solely for the purpose the taxes were enacted – transportation infrastructure and unemployment compensation. Revenue from the state’s income tax must be distributed equitably and in surplus years, placed in a ‘rainy day fund’ for property tax relief in down years or returned to the people who actually paid the surplus taxes.

The lawmakers in Trenton have spent every tax dime they could get there hands on and then some. Surpluses were spent and built into all future state budgets, with never a thought given to the inevitable downturn in the business cycle. Taxes are then raised, more revenue is taken in than needed and then that money is spent. On and on the boom, bust and then tax cycle goes.

This has got to stop now. This year’s state budget must be based upon existing revenue streams period - no increased or new taxes. The state should live within its means, that is what responsible taxpayers must do, so should the state.

Update: A Blog For All has more on this subject. And NJ Conservative reminds us the NJ Schools Construction Corp. is another bankrupt, bottomless money pit for tax receivers.