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STAMP shows tax cuts helped New Jersey |
from NewsLink, Vol. 2, No. 1, Fall 1997
In October, BHI released the results of its application of STAMP to the New Jersey economy. Using its State Tax Analysis Modeling Program, BHI showed that New Jersey's economy benefited substantially from two recent income tax cuts. Personal income tax cuts enacted in 1994 and 1995 were directly responsible for the creation of more than 25,000 new jobs and resulted in more than $2.1 billion in additional capital spending in the state.
BHI found that most of the new jobs created by the tax cuts were mid-range paying jobs. The statewide average annual wage rose from $32,815 in 1994 to $37,115 in 1997, substantially outpacing the inflation rate.
The analysis showed that the 25,000 jobs and the $2.1 billion in new capital spending were a direct result of the two tax cuts. This growth in jobs and capital spending was over and above any growth that took place because of other factors that have contributed to New Jersey's economic expansion.
"Part of the economic expansion that New Jersey experienced over this period would have taken place without any cut in taxes," David G. Tuerck said. "But a substantial part would not have taken place without the tax cuts that were initiated."
In 1994, the state reduced the tax rates on earnings by New Jersey residents from a range (depending on income) of 2%-7% to 1.9%-6.65%. In 1995, it dropped rates further to 1.7%-5.68%.The tax cuts created 25,017 new jobs. This corresponded to a drop of seven-tenths of a percentage point in the statewide unemployment rate for the period 1994 to the present. The tax cuts continue to impact the employment rate. The August unemployment rate for the state was 5.2% Ü one of the lowest rates in seven years.
New Jersey will lose about $514 million in 1997 tax revenues because of the tax cuts. This loss is attenuated by the $930 million increase in payrolls and the $2.1 billion increase in capital spending that the tax cuts brought about. "Our analysis of New Jersey's tax cuts is similar to what we have found in analyzing other states," said Tuerck. BHI released its findings in late October. Several New Jersey newspapers cited the BHI findings in connection with the ultimately successful campaign for re-election of Governor Christine Todd Whitman, who had made the tax cuts a centerpiece of her first administration.
NewsLink is the quarterly newsletter of the Beacon Hill Institute for Public Policy Research at Suffolk University. © 1996-1997. All rights reserved.
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