The Wall Street Journal
200 Liberty Street
New York, NY 10281
Gerald F. Seib's report yesterday on how little New Jersey's economy has benefited from the reported 30% income tax cut under Gov. Christie Whitman fails to take into account the concurrent increase in federal income tax rates rammed through the 1993 Democratic Congress by President Clinton.
At the time Ms. Whitman was elected governor in 1993, the top combined federal/state rate on income tax was 37.65%, that being 31% federal and 6.65% state. The Whitman tax cut brought the top marginal income-tax rate on residents to 6.37% @ $75,000 from 6.65%, at the same time the Clinton increase brought the federal rate to 39.6% from 31%. The combined rate thus increased to 45.97% from 37.65%. If your reporter had asked to see the tax tables, he would have realized the Whitman "30% cut" really only applied to incomes below $20,000, where the rate dropped to 1.4% from 1.9%. My numbers come from the Florham Park, N.J., CPA firm of Giordano, Cohen, Shafman, Haimann & Co.
The higher the combined marginal rate, the more counterproductive it is. Gov. Whitman should at least have made the cuts across-the-board — which is what people outside of New Jersey assume she did. The only reason there was slight improvement in the economy was due to the small cuts in income tax and the tiny cuts in the capital gains tax. The federal rate remained at 28% and the state rate came down by a fraction of a point. The economy would have shown much better results if Gov. Whitman and her Republican legislature heeded the advice of those who urged elimination of the capital gains rate, which would have cost nothing at the revenue level and generated much healthier economic growth.