NCPA - National Center for Policy Analysis


May 27, 2010

Unionized pubic employees swarmed Trenton on Saturday to protest New Jersey Gov. Chris Christie's cuts in the state budget and his "Cap 2.5" proposal to limit local property taxes.  The unions warn that a tax cap will lower the quality of the Garden State's public services, such as schools.  Is that right, asks Josh Barro, the Walter B. Wriston Fellow at the Manhattan Institute?  

For the answer, we can look at Massachusetts, which enacted a similar property tax reform back in 1980.  That reform has led to slow growth in taxation and spending compared to other states, says Barro. 

Massachusetts is the clear national leader in educational outcomes, showing that a well designed property tax cap can constrain taxes and spending while maintaining high quality government services, says Barro: 

  • Massachusetts's Proposition 2.5 limits any town's property tax levy increase to 2.5 percent per year, unless voters approve a greater increase.
  • At enactment, Massachusetts had the country's second highest property taxes per capita.
  • But since then, property tax growth has been slow -- just a 22 percent rise in real terms from 1980 to 2007, compared to 68 percent nationwide and 102 percent in New Jersey. 

This reform has allowed Massachusetts to shed the "Taxachusetts" label, says Barro: 

  • In 1980, its residents faced the second highest state and local tax burden in the country.
  • But because Proposition 2.5 effectively controlled property tax growth -- and because legislators responded to the drop in revenues by restraining spending and not just raising other taxes -- Massachusetts has fallen from the second most taxed state to 23rd. 

Meanwhile, New Jersey's taxes have kept rising, and New Jersey residents have the dubious distinction of paying more of their incomes in state and local taxes than people in any other state, according to the Tax Foundation.  Christie is saying he won't raise taxes anymore -- and Massachusetts shows that's not necessary. 

Source: Josh Barro, "Tax cap proved its worth in Massachusetts, can work in New Jersey," New Jersey Star-Ledger, May 26, 2010. 

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