The History of New Jersey Property Tax Relief

New Jersey’s Constitution requires 100% of the revenue collected from the state’s income tax be used for “property tax relief”. This system is also known as Robbing Peter to Pay Paul and recently, Robbing Peter to Pay Peter. Officially it’s called the New Jersey Property Tax Relief Fund.

Contrary to popular belief, New Jersey’s income tax revenue can not be used to reduce state debt, to make contributions to state worker pension funds, to build state roads, to pay for Charity Care, to provide state security or for any other state expense. It can only be used for “property tax relief”.

The state provides “property tax relief” indirectly, by granting aid to local government (municipalities and counties) and directly, with property tax rebates/credits to homeowners and renters. Indirect “property tax relief” is granted in the form of school aid and municipal aid to local governments.

New Jersey’s Property Tax Relief Fund began working its magic under Democrat Governor Brendan Byrne in 1976 and by 1977, state income tax collections totaled $764,623,000. Initially there were two income tax brackets and rates. (see tax rate chart below).

Republican Governor Tom Kean was in office when the state income tax marked its ten-year anniversary. By 1986, the Property Tax Relief Fund had swelled to nearly three times its original size, to $2,227,740,000. The Fund grew throughout Kean’s two terms as governor without any hikes to state income rates.

But in 1991, Democrat Governor Jim Florio called for more ”property tax relief” and income tax rates were increased for “the wealthy”, people with incomes of $50,000 or more. Six income brackets were created and tax rates became more progressive (see tax rate chart below).

By the time Florio was swept from office in 1993, the Property Tax Relief Fund was at $4,325,304,000. Some New Jerseyans were beginning to catch on to the absurdity of paying more state taxes in order to have some portion of their money returned in “property tax relief”.

In 1994, newly elected Republican Governor Christie Whitman followed through on a campaign promise to reduce income tax rates over a three-year period, 1994 through 1996. As you can see from the chart below, the tax rate cuts were skewed more favorably to the lower and middle income groups, but all brackets received rate reductions.

State income tax collections increased every year the Whitman/ DiFrancesco administration was in office and by 2001, the Property Tax Relief Fund totaled $7,989,222,000, nearly double the amount when Whitman took office in 1994.

By the summer of 2004, beleaguered Democrat Governor Jim McGreevey decided more "property tax relief" was in order. He created the ”millionaires tax” and had it enacted retroactively to January 1, 2004. The “millionaires tax” amounted to the creation of a new income tax bracket and a higher rate for residents with incomes over $500,000 (see tax rate chart below).

By the time McGreevey was forced to resign from office in 2004, the Property Tax Relief Fund was pulling in $7,156,770,000, $800 million less than when the Whitman/ DiFrancesco administration left Trenton in 2001.

The reduction in the state’s income tax revenue was due to the progressive nature of New Jersey’s income tax structure. Total personal income in New Jersey had actually increased every year McGreevey was governor, but income and the number of taxpayers in the higher tax brackets had declined, therefore, state income tax revenue fell.

New Jersey households reporting over $100,000 in income account for 80 percent of the state’s income tax revenue and 42 percent of state income taxes are paid by 1 percent of filers. When taxpayers in the higher income tax brackets leave the state, lose their jobs or make less money, New Jersey’s Property Tax Relief Fund takes a nose dive.

To the good fortune of all, the “Republican-Bush tax cuts’ fueled unprecedented economic growth and by 2005, Democrat Governor Dick Codey saw state income tax revenue grow to $9,537,938,903 and by 2006 it hit $10.335,000,000. At that point, New Jersey’s Property Tax Relief Fund had grown by more than $3 billion since McGreevey’s resignation in 2004.

Enter Democrat Governor Jon Corzine who estimates the Property Tax Relief Fund will post a balance of $11.615,000,000 in 2007. That’s $1.3 billion more than last year and it may turn out to be even more. Corzine’s plan to reduce state income rates for filers with incomes of $30,000 or less, was eliminated from the new budget.

However in July 2006, Democrats decided more property tax relief was needed to counter the 40 percent rise in property taxes since their Party had taken control of state government in 2002. After much wrangling and a shut down of state government, Corzine announced a plan to raise the state’s sales tax, but to set aside some of the new revenue for “property tax relief”.

When the smoke cleared and the dust settled on New Jersey’s budget for 2007, state aid to municipalities ( “property tax relief”) remained flat, just as it had for the previous four years*. Property tax rebates were not increased as promised and some residents, lucky enough to qualify for the program, discovered their rebate will be cut $100, providing $250 in direct “property tax relief”.

Since 1976, the New Jersey Property Tax Relief Fund will have cost taxpayers $134,836,871,000 in income taxes. Billions more have been granted in "property tax releif" from the state’s other tax and revenue sources. Yet three decades later, the state still has the highest property taxes in the nation.

Of course, the only way to actually provide tax relief is to reduce spending and cut taxes. After thirty years, you’d think New Jerseyans would wise up to this fact.

We’ll see. Governor Corzine has announced he’s working on a new “property tax relief” plan and Senator Robert Menendez is calling for a repeal of the “Bush tax cuts” for the “wealthy”. Menendez apparently hasn’t discovered that for the purposes of federal tax calculations, New Jerseyans are “the wealthy”. Corzine continues to search for a new way to rob Peter to pay Paul or to just rob Peter and call it “property tax relief”.

* Thirty-one of the state’s 566 municipalities are designated as “Abbott” for the purposes of “property tax relief” related to education aid and “needy” for the purposes of “property tax relief” related to all other municipal aid. The 31 municipalities designated as “Abbott” and “needy” were not subjected to the zero growth in “property tax relief” until the 2007 budget.