Facing a Thursday deadline to pass a budget and avoid a government shutdown, the New Jersey Legislature will likely vote on Gov. Chris Christie's $29.4 billion budget sometime today. The spending plan is roughly $1.5 billion smaller than its predecessor, and includes important cuts in state aid to schools and local governments. It also includes a small tax increase on hospitals and ambulatory care providers that ATR will urge Gov. Christie to strike using his line-item veto.
Some are arguing that the cuts in local aid constitute automatic local tax increases. This argument is flawed for two reasons. First, it assumes that local governments currently operate at their optimal sizes, and that any loss in state aid necessitates a concurrent revenue increase. In reality, localities are no different than state and federal governments: They must live within their means and find cost savings that reflect economic reality.
Second, Gov. Christie has proposed a cap on the annual growth of local property taxes at 2.5 percent. This is an explicit response to the threat of local tax increases to make up for the loss in state aid and will force the hand of local governments to cut spending, privatize assets and services, and consolidate government functions.
In today's Daily Caller I dissect the "spending cuts as implicit tax increases" mantra:
For conservatives to argue that reductions in state aid to localities constitutes a tax increase is the same as claiming an end to the stimulus package means automatic tax increases at the state level. We do not make that claim because it presents a false choice. The federal government should not prop up state budgets any more than state government should prop up localities. Municipalities, like states, should balance their own budgets by spending within their means, rather than looking to their big brother to bail them out.