THE NEW JERSEY EXPERIMENT
NOVEMBER 1, 1996
Proponents of Bob Dole's 15 percent tax cut proposal point to New Jersey Governor Christine Todd Whitman's successful 1993 campaign that promised major tax cuts as a model, but the verdict on those cuts is still out. Economics correspondent Paul Solman of WGBH-Boston visits the Garden State to see whether Whitman's tax cuts have made living in New Jersey more like a bed of roses.
PAUL SOLMAN: One model for Bob Dole's tax cut plan--the state of New Jersey under its new Republican administration.
A RealAudio version of this NewsHour segment is available.
Online Forum with Gov. Christine Whitman
Oct. 25: Last week, Shields and Gigot discussed Bob Dole's frustration in the closing days of the campaign.
Oct. 23: While campaigning in Florida, Bob Dole lays out his tax plan.
Oct. 3: Kwame Holman reports on the dueling tax plans of this year's presidential race.
Sept. 29: On PBS Debate Night, the four Congressional leaders debate tax cuts.
August 5: Bob Dole unveils his economic plan.
March 7: Paul Solman reports on the history of taxes--and anti-tax sentiments.
Browse The Online NewsHour's coverage of the Presidential debates.
An Online NewsHour briefing on the tax issue.
The NewsHour Economy Page.
Browse NewsHour segments on the federal budget.
SEN. BOB DOLE: And just as you put Christie Whitman in the governor's chair, who said she would cut taxes and she did, who said she would bring spending under control, and she did, and now your economy is growing, your taxes are lower, and the state budget is in surplus. What a change it made by electing Christie Whitman, who kept her word and trusted the people of New Jersey.
PAUL SOLMAN: Dole might identify Whitman. Three years ago, polls had her and her campaign team trailing incumbent Democrat Jim Florio by double digits with just a month to election day. But she pushed a three-year, 30 percent income tax cut and came back to win. This year, in her annual address as governor, she boasted that she kept her promise.
GOV. CHRISTINE TODD WHITMAN, New Jersey: As of 10 days ago, income tax rates from most New Jerseyians are now a full 30 percent lower than they were just two years ago.
PAUL SOLMAN: According to Whitman then, her plan is working.
GOV. CHRISTINE TODD WHITMAN: We are right on target with all our revenue estimates, and things are--we've seen a net gain--net increase of 138,000 jobs, and we're doing very well.
PAUL SOLMAN: Several hundred of those jobs were showcased at this brand new shoe distribution warehouse in Edison, where Christie Whitman took Bob Dole early in his campaign. She and Dole were here because it was tax cuts that attracted this firm, in part says management's Alan Schecter because of the effect of the income tax cut on his employees.
ALAN SCHECTER, ADS: They're able to garner more of their take-home pay, which is what I think it's all about today, how do get more money into the pocket of people that are working. Tax cuts do that. In this particular case, it has a direct benefit on the, on the people in this area.
PAUL SOLMAN: And, therefore, you could afford to pay to hire people whom you otherwise might not be able to afford?
ALAN SCHECTER: That's correct. That's correct. This facility--any business is economically viable only if you can operate it at a level at which you can make a profit.
PAUL SOLMAN: Moreover, say Republicans, in getting businesses like this to locate or even stay in New Jersey, Whitman has had to battle, to battle the Big Apple and its aggressive efforts to tempt various New Jersey firms to cross the Hudson River. Yet, she successfully lured the new cable TV collaboration between Microsoft and NBC. They're now starting construction on a studio in Secaucus. And Whitman convinced corporate cousin CNBC to stay put in Fort Lee. But though Whitman boasts of a flowering economy, life is still no bed of roses in the so-called garden state. New Jersey's a long way from reversing its grungy image typified by oil refineries on the turnpike and more famously their smell. Even at the statehouse, we noted, things haven't been looking too good. New Jersey's state motto, inscribed in Latin in the statehouse dome, means: Let there be justice, though the heavens fall. But surely, the state founders who coined that phrase couldn't have meant for it to be taken literally, and then we ran into Red Mascara, lobbying with gumdrops for 20 years to get his PR anthem adopted as the state song.
RED MASCARA: (singing) I'm from New Jersey, and I'm proud about it. I love the garden state. I'm from New Jersey and I want to--
PAUL SOLMAN: Now, we weren't the only ones to find problems. Reporter Dusty McNichol of the Bergen Record has been following the state's economic progress since Gov. Whitman took office. Remember the key argument, the state's economy is growing due to tax cuts. So McNichol studied the data.
DUNSTAN McNICHOL, The Record of Hackensak: What we tried to do was look at the trends that were taking place in the economy before Gov. Whitman became governor and look at how they've continued on through the first two and a half years of her administration. And it's awfully hard to find any change in those trends. There were jobs being added at a faster rate during the last year of Gov. Florio's administration than were added last year.
PAUL SOLMAN: And, says McNichol, they weren't such good jobs either. We asked the governor to respond.
GOV. CHRISTINE TODD WHITMAN: Well, first of all, I will obviously disagree with Dusty because he knows that under Gov. Florio we lost over 350,000 jobs total. The economy had started to come back, no question, but we had kept a very steady and positive gain, and not only have we replaced the jobs that we have lost from say AT&T downsizing, but we've added those 138,000, and we've continued to add in real economic terms.
PAUL SOLMAN: But, counters McNichol, that's a lot less than she said the tax cut would deliver.
DUNSTAN McNICHOL: The governor, herself, said it would create 450,000 new jobs in four years. They're up to 135,000 and almost through their third year. It's hard to say that it happened.
PAUL SOLMAN: The bottom line then is that nearly 140,000 jobs have been created under Whitman but, say critics, that's not nearly as many as promised. And maybe the credit should go to a general economic recovery, not Whitman's specific policies. There are other criticisms as well. A full third of the tax cut, for instance, was paid for by drastically cutting contributions to the state pension fund. That, says bank president George Zoffinger, who worked for Gov. Florio, could mean under-funding and a huge tax hike when the bulk of state employees retire years from now.
GEORGE ZOFFINGER, Former Commerce Commissioner: Gov. Whitman will not be governor of New Jersey in 10 years. Um, so the, the fact is that somebody else is going to have to deal with that nightmare.
PAUL SOLMAN: The governor insists, quite naturally, that the pension move was sound.
GOV. CHRISTINE TODD WHITMAN: If we shut down state government tomorrow, everyone who's entitled to a pension would get it, everyone currently on a pension would get it. We're just not prepaying--over-prepaying as much as we have been before. We're still in the top 50 percentile of prepayment. The pension fund is very, very healthy. It has grown quite a bit and is doing very well.
PAUL SOLMAN: Most agree, however, that state pension funding has gone from conservative to more risky. And that makes George Zoffinger nervous.
GEORGE ZOFFINGER: What we have here is we're borrowing against the future, and that the bill is going to come due. And at some point, you know, people are, you know, that run the businesses of this state, are going to face--recognize the fact that, you know, that--that a lot of the economic juggling that's being done are not really producing long-term job incentives in the state.
PAUL SOLMAN: There's one more major criticism of the Whitman tax cuts; that they've threatened services in cities and towns. In Fairview, for instance, the library's having trouble keeping up appearances, much less staying open to the public. And this was the first police car we ever saw getting a jumpstart. In suburban Maplewood, passers by were explicit.
MAN ON STREET: The fact is that income tax cut only lowered our income tax by a miniscule amount, and in order to make up for the difference for the school budgets and whatever the townships need, everybody had to get a raise in their property taxes. My property taxes in the township I live in went up 14 percent, which equated to about, uh, $475 this year, because of the fact that she cut our income tax or gave us a reduction.
PAUL SOLMAN: And how much did you save on the income tax?
MAN ON STREET: $50.
WOMAN ON STREET: We may even have to sell our house because our taxes have gone up so high.
PAUL SOLMAN: Is that true?
WOMAN ON STREET: That's true.
PAUL SOLMAN: How much do you pay in taxes a year?
SECOND MAN ON STREET: Almost $8,000.
PAUL SOLMAN: And so how much did they rise in the last couple of years?
SECOND MAN ON STREET: Oh, wow, $3,000.
PAUL SOLMAN: And you saved how much in income tax?
WOMAN ON STREET: Very little.
SECOND MAN ON STREET: Hardly anything at all.
WOMAN ON STREET: Very little.
SECOND MAN ON STREET: Didn't help me at all, at all.
GOV. CHRISTINE TODD WHITMAN: Yes, property taxes are going up, but that's a function of local spending. It is not inexorably linked to the income tax, which is what everybody wants to make it seem. When my predecessor raised taxes $2.8 billion and put $1.5 billion directly into the school districts, through the Quality Education Act, property taxes still went up.
PAUL SOLMAN: Okay. After all this, where are we? Well, we came to New Jersey, because Dole campaigned with Whitman on a premise that an income tax cut would work wonders. But we found no strong evidence that thus far it has--worked wonders that is. On the other hand, says Arthur Maurice, head of a state business group, Whitman's tax cuts have already achieved a broader, arguably more basic goal of Republican economics--cutting back government.
ARTHUR MAURICE, New Jersey Business Association: In order to cut government, you really have to cut the revenue stream. Think of the business sector. Um, downsizing occurs often--most often because a company simply is finding its losing market share, losing revenues. Why would we think that government could be made, uh, more cost-effective, without a similar spur? Bureaucrats will act if there is a decline in resources. Otherwise, where's the incentive?
PAUL SOLMAN: So you cut taxes to force cuts in government, as was argued as far back as the Reagan era. And what does the governor say when pressed as to why her record is relevant to the Dole campaign?
GOV. CHRISTINE TODD WHITMAN: It shows that you can cut taxes, the world isn't going to come to an end. You can still provide needed services, and it gives people back more of the money that they earn.
PAUL SOLMAN: And if people we talked to her say, gee, I'm not that impressed with the tax cuts, you respond--
GOV. CHRISTINE TODD WHITMAN: My response is wait till they see it. They'd rather have tax cuts than tax increases, and Bob Dole is someone you can trust. He's a man of his word.
PAUL SOLMAN: In the end then, we're again talking Republican economic philosophy; that people supposedly spend money more efficiently than government does on things they really want, instead of those government, for its own reasons, chooses to provide. And, indeed, in New Jersey, as elsewhere, it's not an argument that falls on deaf ears. The income tax cuts of Gov. Whitman--
PAUL SOLMAN: Like ‘em?
WOMAN: Love ‘em.
PAUL SOLMAN: Why?
WOMAN: Why? We're paying over 40 percent of our salaries in taxes.
MAN: I think she's doing a great job. I think, uh, it really lets the people spend their money, instead of the government.
UNIDENTIFIED MAN: I like it. It's good.
PAUL SOLMAN: Yes.
UNIDENTIFIED MAN: I like it.
PAUL SOLMAN: Do you think it's good for the economy of the state?
UNIDENTIFIED MAN: Yes. I think everything you can get extra helps the economy.
PAUL SOLMAN: Now, in fairness, this was how less than a quarter of our folks on the street responded. In truth, more members of our statistically insignificant sample of 18 were skeptical at best. For what it's worth then, our interviewing didn't suggest the Whitman-Dole economic message has taken New Jersey by storm, but it did make it clear that tax cuts have certainly gotten people's attention.
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