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Christie Economist Once Backed Tax Boost Governor Opposes

Four months before he joined Governor Chris Christie’s administration as New Jersey’s chief economist, Charles Steindel recommended a tax surcharge on the state’s wealthiest residents, a view his current boss opposes.

“Temporarily raising income taxes on high-income households during a downturn” would have the advantage of placing “a larger burden on households that are less liquidity-constrained,” Steindel, then a senior vice president for the Federal Reserve Bank of New York, wrote with economists Richard Deitz and Andrew Haughwout in a July 2010 report.

Christie, 49, a first-term Republican, has twice vetoed measures sponsored by Democrats that would have raised income taxes on residents earning $1 million or more. He has said any increase would halt the state’s economic recovery, and that the 10 percent income-tax cut he proposed in January is the key to bringing jobs back to New Jersey.

Steindel, who was hired by Christie’s administration in November 2010, released a study from the New Jersey treasury department in October 2011 which said that increasing income taxes on wealthy residents drives them out of the state.

“You don’t have that evolution in one year,” Senate Budget Committee Chairman Paul Sarlo, a Wood-Ridge Democrat, said in a telephone interview today. “It’s a complete role reversal.”

‘No Conflict Whatsoever’

Steindel, 60, is a resident of Glen Ridge who holds a doctorate in economics from the Massachusetts Institute of Technology. In his current position, he advises top-level state officials on economic conditions and predicts trends that shape budget policy.

Reached by telephone at his Trenton office, Steindel declined to comment and referred questions to Andrew Pratt, a spokesman for Treasurer Andrew Sidamon-Eristoff. Kevin Roberts, a Christie spokesman, also referred questions about Steindel’s reports to the treasury department. Sidamon-Eristoff will appear before lawmakers tomorrow for the first time since Christie’s February budget address.

“There is no conflict whatsoever between Steindel’s now-dated report that discussed states generically, and Governor Christie’s choice to balance budgets without raising taxes in the one of the most overtaxed states in the union,” Pratt said in an e-mail. “Dr. Steindel understands that taxes must be tailored to the needs of the state in which they are imposed.”

Budget Holes

The Fed branch’s July 2010 study, “The Recession’s Impact on the State Budgets of New York and New Jersey,” proposed options including a so-called millionaire’s tax for helping those states avoid budget deficits. Other suggestions included raising sales taxes, creating rainy day funds and drafting plans for spending cuts and tax increases in advance of slumps.

“All of these possible solutions pose challenges of their own,” the authors wrote. A temporary tax increase on high-income households should be lifted once the economy begins to improve, the report said.

Steindel’s October 2011 study for the New Jersey treasury concluded that a 2004 tax increase on income exceeding $500,000 led to losses of 20,000 taxpayers and $2.5 billion in annual income. “Over time migration effects could offset a meaningful share of the revenue boost,” according to the report.

That study was based on flawed reasoning to justify Christie’s agenda, Senator Richard Codey, a Democrat from Roseland, said in a telephone interview today.

‘University of Christie’

“I would assume he had to take a special course at the University of Christie to reorient his economic thinking,” Senator Loretta Weinberg, a Democrat from Teaneck who serves on the budget committee, said of Steindel. “I really hope that Christie hears from the people closest to him about the downside of some of the policies he adopts, and that he doesn’t force them into his way of thinking.”

New Jersey led the U.S. in combined state and local tax burden in 2009, according to the Washington-based Tax Foundation. The state last enacted a levy on the wealthy under former Governor Jon Corzine, a Democrat defeated by Christie in November 2009.

Corzine authorized a one-year increase on residents reporting annual income of more than $400,000. That levy expired in December 2009, and Democrats didn’t reauthorize it after Christie urged lawmakers to use restraint during the lame-duck session before he took office, Weinberg said.

Steindel’s earlier report recommending a millionaire’s tax bolsters Democrats’ case for it, said Weinberg, who was Corzine’s running mate. Her party controls both houses of the Legislature.

Budget Proposal

Christie’s $32.1 billion budget, the biggest in five years, counts on revenue increasing 7.3 percent, the most since before the recession began in December 2007. The plan is structurally unbalanced because it is built on “optimistic” growth projections, Standard & Poor’s said in a Feb. 24 report.

For the first eight months of fiscal 2012, which ends June 30, revenue was 1.7 percent below projections, or 4.3 percent higher than the same period of 2011, Sidamon-Eristoff said on March 7.

U.S. state tax collections have risen for the past two years, easing pressure on governments struggling to erase budget deficits left in the wake of the 18-month recession. Revenue rose 3.5 percent during the last three months of 2011, the slowest pace in 18 months, the Census Bureau said March 22.

“States should probably not expect dramatic growth in revenues over the next year or two,” Robert Ward, who follows states for the Nelson A. Rockefeller Institute of Government in Albany, New York, said last week in a telephone interview.

Back on Track

Christie, who is midway through his first term, froze $2.2 billion in spending to close a midyear deficit in 2010, and then cut $10 billion in projected new spending for schools, pensions and towns. He said a 10 percent tax cut for all New Jersey residents is possible now that the state’s “fiscal house is in order.”

“Mr. Christie doesn’t tolerate differing opinions too well,” said Codey, who was acting governor for more than a year after the 2004 resignation of former Governor James McGreevey. “Sometimes loyalty asks too much.”

Senate Democrats have proposed giving residents earning as much as $250,000 a 10 percent property-tax credit on their income-tax returns. Assembly Democrats want a 20 percent property-tax credit for middle-class families and an increase for those making $1 million or more.

Tax on Wealthy

The Assembly Democrats’ millionaire’s tax would increase the rate to 10.75 percent from 8.97 percent beginning next fiscal year. That surcharge would affect about 16,000 out of 2.6 million filers and raise $800 million, they said.

Christie has said that he and Senate President Stephen Sweeney are “pretty close” on a tax-cut plan, and has dismissed the Assembly Democrats’ proposal as “dead.” Democrats have said Christie’s plan favors the wealthy.

Democrats may push to get the millionaire’s tax on the ballot in 2013, when Christie faces re-election. Assemblyman Reed Gusciora and Senator Shirley Turner, Trenton-area Democrats, have introduced legislation that would ask voters whether to raise the top income tax rate to 10.75 percent on earnings above $1 million.

New Jersey voters’ support for a millionaire’s tax reached a record high, 64 percent to 28 percent, in a Nov. 17 poll by Quinnipiac University, the most recent survey on the issue.

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