New Jersey Is the Perfect Bad Example: Obama should look here to see what high taxes do. By William McGurn

Source: http://online.wsj.com/article/SB123059756486341161.html

DECEMBER 30, 2008


Madison, N.J.

When Barack Obama makes his New Year's resolutions, at the top of his list ought to be the following: "I will not allow America to become New Jersey."

Think of it as our gift to the nation. Other states offer promising experiments in areas such as Medicaid, taxes, education and regulatory reform. In contrast, the People's Republic of New Jersey offers America something truly unique: the perfect bad example.

As harmful as this has been for our own prosperity, our example could be invaluable for President-elect Obama. That's especially true given that his team appears to be considering some of the same things that have long been popular in Trenton. For years, the solons in our state capital have operated on the assumption that you can have high taxes everywhere -- on income, on property, on business -- without suffering any consequences.

Well, Gov. Jon Corzine is now dealing with those consequences, and his budgets show it. Earlier this year, he pushed through a budget that was one of the few in New Jersey history to be less than the one that preceded it. With revenues now running $1.2 billion short of what was expected, the next budget will undoubtedly be tougher still.

Not all of Mr. Corzine's choices have been good ones. In fairness, however, he is dealing with huge problems that have been years in the making. In some ways, we are a mini-California. That is to say, where New Jersey was once a national leader in terms of economic growth and job creation, more recently we have become a national laggard.

It seems not to have dented the consciousness of our political class that New Jersey's dismal economic performance might be linked to the state's tax policy. According to the nonpartisan Tax Foundation, New Jersey is home to the most hostile tax environment for business in the nation. We also bear the nation's highest burden of state and local taxes. And on the list of the 10 counties with the highest median property tax, we claim seven of them.

During the last recession, we began to feel the full weight of these burdens. Other states responded by cutting back on spending and getting their houses in order. Not New Jersey. Then-Gov. Jim McGreevey added to the burden by borrowing and spending and raising the corporate tax -- including the imposition of an alternative minimum tax on business. And we've been paying for these bad choices ever since.

Mr. Obama might pay special attention to what these measures have meant for jobs, especially given his expressed concern for the struggling middle class. Though the state did ultimately emerge from recession in 2003, private-sector job creation since then has been a pale shadow of what we enjoyed after the recessions of the 1980s and 1990s.

Of course, there was one area where jobs did grow. From 2000 to 2007, says the New Jersey Business & Industry Association, the government added 54,800 jobs. To put that in proper perspective, that works out to 93% of all jobs created in New Jersey over those seven years.

So how do we respond to these new hard times? Beginning New Year's Day, New Jersey workers will see even more money taken from their paychecks. The money will support a new mandate offering six weeks of paid family leave to almost all New Jersey employees -- right on down to those working in very small operations. In itself, the family-leave tax will not be the ruin of the state economy. But the imposition of yet another new tax at this moment bespeaks a lack of seriousness about what both New Jersey workers and businesses can afford.

For the moment, Mr. Corzine, like Mr. Obama, is putting his faith in public-works spending. Indeed, he has even called on the president-elect to expand his own plans for an infrastructure stimulus to $1 trillion. And it would be hard to deny that our tired infrastructure could use some attention.

But amid all the debate over jump-starting the economy through public works, we risk losing sight of a larger truth: What governors and citizens alike need most is a growing economy that is creating jobs for the people and sending revenue to the capital. Over the long run, the only way to have a healthy and growing economy is to do exactly what New Jersey has not: Trust the people with their own money, and create an environment where initiative and enterprise are rewarded rather than penalized.

Absent a thorough-going revolution in Trenton, New Jersey may be lost for some time to come. But if Mr. Obama can learn from our bad example and do the opposite, New Jersey's loss might yet be America's gain.

Write to MainStreet@wsj.com