af40's Blog

New Jersey Governor Jon Corzine's proposed toll hikes over the next several decades will mean not just higher costs for New Jersey's commuters, but higher costs for a wide range of products that depend on transportation across the Garden State.  While Corzine touts his plan as the only viable "alternative" to debt reduction outside of what he considers to be an unpopular income tax increase, there can be no doubt that the toll hikes will be, in all but name, equivalent to an income tax hike. That tax hike, in turn, is likely to hit New Jersey drivers and business owners hard.

There must be an alternative to this Draconian measure.  Many small businesses already shell out thousands of dollars each year in transportation costs. With oil prices on the rise, a 50% increase every four years on some of New Jersey's most travelled roads might eventually "break the bank" for small business owners, causing some to go into bankruptcy and others to simply leave the state. A result of this might be a shrinking of the tax base- an effect that might completely undo any supposed benefit of the toll hike. Corzine's apologetic reasoning that a lot of the tolls on New Jersey's roads are paid by drivers from out-of-state is no justification for sapping New Jersey's drivers.

As usual, Democratic legislators in New Jersey are not thinking ahead, and, frankly, not thinking at all. New Jersey is in a sad state of affairs not because its tax rates are low (New Jersey has some of the highest local and state tax rates in the nation, as even Corzine admits), but rather because it has nearly spent itself into financial insolvency, much of it on account of corruption. If spending is not brought down, then there can be no justification for toll hikes that outpace the inflation rate by nearly ten-fold. Corzine's reasoning that a bond issue based on the toll hike is likely to impove New Jersey's bond rating avoids the central problem: New Jersey has a relatively poor bond rating (which causes it to shell out more money on public bonds to cover the added "risk") not because it has not raised taxes, but rather because it has spent itself into debt- kind of like a teenger with a wallet full of unpaid credit cards whose credit rating stinks.

While New Jersey's $3 Billion deficit is large, it is no justification for the de facto tax increase that the toll hike represents. Many states have budget deficits that are financed by public borrowing, and while debt financing can reduce the overall amount of money in the budget available for in-state projects (a problem cited by Corzine), it is not an insurmountable problem.  Most economists see this debt as a problem only when the debt-to-GDP ratio is high, because it is the GDP that actually determines the state's ability to pay its debts. The Liberal economist Paul Krugman, in fact, views fears over the debt and deficit as largely unfounded precisely because the United States (and most states within it) are well within their financial means when it comes to the debt-to-GDP ratio. New Jersey is no exception.

The key to reducing the state's deficit and debt is, first, cutting spending, and second, creating a better investment and business environment. A toll hike is a direct tax on businesses, and is likely to literally drive out businesses.

New Jersey's legislators and its governor need to realize that the simple mathematics of debt reduction are often confounded by the unanticipated consequences of long-term private sector taxation. To date, no New Jersey legislator has addressed these long term consequences, and until such time a tax through a toll hike is likely only to exacerbate the problem.