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Public policy consensus explains New Jersey’s rise in poverty

A review of reports published over the course of 2014 on New Jersey would suggest that the Garden State take on some serious New Year’s resolutions.

The number of poor persons in New Jersey increased from about 935,000 to just less than 1 million compared to a nation-leading 63,600 between 2012 and 2013, according to U.S. Census figures.  New Jersey joined New Mexico and Washington as the only three states to see significant increases in their rates of poverty between those years.

Although the poverty rates increased across the Greater New York tri-state area during the last recession, those rates leveled off in New York and Connecticut after the recession.  On the other hand, New Jersey’s overall statewide poverty rate is 11.4 percent, which is below both the national average of 15.8 percent and New York’s poverty rate which was nearly unchanged at 16 percent.

According to the Census Bureau, New Jersey has pockets of relatively high poverty in places like densely-populated Hudson County in the northeast and rural Cumberland County in the southwest.  While other states also have pockets of poverty, State Sen. Jeff Van Drew (D), who represents the three southern counties of Atlantic, Cape May and Cumberland, said, “There just isn’t the diversity of opportunity here,” as the reason for rural poor.

Gov. Chris Christie blamed high taxes for driving employers out of the state, as well as the effects of Hurricane Sandy. The Tax Foundation supports Christie’s position on taxes because it ranked New Jersey dead last in its 2015 State Business Climate Index in which it considered five state taxes that affect the state’s business climate. New Jersey was dead last in property taxes and 41st in business taxes, as well as scoring 48th in both individual income taxes and sales taxes.

In addition, the Garden State is one of only two states to have both an estate tax and an inheritance tax. New Jersey’s estate tax exclusion is a very low $675,000, which is the lowest in the country.  In many cases, the exclusion will barely cover the house. Meanwhile, many states have neither of these taxes, and several states, such as Ohio, have just repealed their estate taxes.

The Garden State is rated by some estate tax specialists, like George E. Williams  in “New Jersey – The Hostile Tax State”, as the worst state to die in. When retired people move to Florida or another state with no estate taxes, they take millions of dollars of wealth with them.  This loss of wealth hurts job creation in New Jersey and is one of the causes of poverty in the Garden State.

New Jersey also received a low ranking in The American Legislative Exchange Council’s 2014 Rich States, Poor States, consisting of the states’ “Economic Performance Ranking” and their “Economic Outlook Ranking.”  New Jersey’s Economic Outlook Ranking, based on 15 legislative policies, came in at 45 (out of 50 states) due to its legislatively-induced poor economic outlook.  Employers are less likely to move into a state with a poor outlook.

New Jersey had been slowly improving its Outlook Ranking from 48 in 2008, the last year of the Jon Corzine governorship, to 39 in 2013.  This nine-state improvement in Outlook came after four years of improved economic policies painstakingly achieved by Gov. Chris Christie’s uphill battles with the Democrat-controlled New Jersey Legislature.  These improved policies included capping property tax increases at 2 percent, increasing public employees’ contributions to their health care and pension plans, easing tenure rules for teachers, and reducing the number of state employees.

The Mercatus Center at George Mason University, based on 2012 data, ranked the Garden State dead last for fiscal solvency.  New Jersey’s $727 per-capita budget deficit was the worst in the United States, while the average state actually had a surplus.   Its $7,935 per-capita long-term debt was nearly three times the national average, and its net asset ratio of -1.33 was the worst in the country.

Sarah Arnett, the author of the report, pointed out that poor rankings of various states were the result of years of bad management.  For example, she indicted that the New Jersey’s poor solvency condition was due in part to nearly 15 years of under-funding its pensions, resulting in unfunded pension liabilities of  $25.6 billion and unfunded public employee health benefits of $59.3 billion.  Christie cannot be fully blamed for the under-funding, since he had only been in office for two years in 2012, the year of the data used in the study.

However, Arnett also determined that New Jersey’s revenues were not keeping up with its expenditures, putting its “service solvency,” the ability to provide adequate services to its residents, in question.  Naturally, this last place in its fiscal solvency rating makes it difficult to attract businesses to New Jersey to create the jobs that will lift people out of poverty.

There are many changes New Jersey could make to attract new business, increase employment and reduce poverty, but the first step is acknowledging the problem.  This series will investigate what present and potential public policies contribute to poverty in New Jersey, and how to go about eliminating it.

Click here to read part two

Featured image from Shutterstock

Richard Miner

Richard is a retired corporate attorney. In New Jersey, he was General Counsel of Mohawk Data Sciences, a NYSE-listed computer company, and VP and General Counsel of Momentum Technologies, a privately held computer company. He has a J.D. from Columbia Law School, a Masters in Corporate Law from NYU Law School, a B.A. in Economics from Brown University, and a certificate in Corporate Financial Management from NYU Stern School of Business. Raised in Ridgewood, NJ and a graduate of Ridgewood High School, he enjoys downhill skiing and races Lightning sailboats from his home at Lake Mohawk, NJ.

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