The Honorable Chris ChristieGovernor of New JerseyState Capitol BuildingTrenton, NJ 08608
Dear Governor Christie:
National Taxpayers Union’s 10,000-plus members in New Jersey have been pleased with your commitment to avoid tax increases, including personal income, sales, and corporate businesses taxes. This is especially impressive considering the dismal economic climate that you inherited when you began your work as Governor. Furthermore, your efforts toward continually balancing the Garden State’s budget are commendable and have not gone unnoticed by taxpayers.
Our members were once again grateful that your latest budget plan avoided personal income and gasoline tax increases—both of which Democratic lawmakers have undoubtedly advocated. However, your plan would impose unfair new burdens on e-cigarettes and online shopping, which run contrary to your repeated promise not to raise taxes. Additionally, the call for increased spending is also cause for concern.
The proposed tax treatment of e-cigarettes and e-liquid at the same rate as traditional cigarettes ($2.70 per pack) would amount to an estimated $35 million yearly tax hike. It is our hope that instead of continuing to embrace this policy, you will consider that the main ingredients producing the water vapor in e-cigarettes—propylene glycol and glycerin—are considered harmless by the FDA and can be found in everything from toothpaste and fog machines to foods and cosmetics. E-cigarettes contain no tobacco, and a recent study by Dr. Joel Nitzkin of the R Street Institute found that such products can actually reduce the risk of tobacco-related deaths or illnesses by 98 percent or more. By inaccurately treating e-cigarettes as tobacco and imposing an illogical tax rate, the budget would discourage the use of an option that can save lives.
Small businesses would also be negatively impacted by this aspect of your plan. The e-cigarette stores opening up throughout New Jersey (as well as existing establishments stocking them) would be hit hardest, as consumers are likely to avoid the tax increase by purchasing from out-of-state vendors over the Internet. As a result policymakers cannot easily predict the consequences for revenues, since they would be effectively punishing sales of a new product that can be purchased through other means.
In addition to the e-cigarette tax hike, the budget would foist an inequitable compliance regime on Internet commerce by forcing out-of-state retailers to collect an estimated $28 million in sales taxes from New Jersey customers annually. Like the unpopular Marketplace Fairness Act on the federal level, this proposal would saddle many small Internet-based businesses with a constitutionally questionable burden. While we understand your aim is to protect New Jersey’s “brick-and-mortar” stores, this scheme amounts to extraterritorial tax enforcement. Furthermore, the “pot of gold” envisioned from this policy may be illusory. For example, a recent analysis from the Wisconsin Taxpayers Alliance concluded that the actual amount of “lost” sales tax proceeds from e-commerce in that state may be about one-fifth of what had been previously projected.
Perhaps the most alarming aspect of this budget proposal is that it would continue heavy government spending in New Jersey, where expenditures exploded by 48.7 percent between 2001 and 2011, even after inflation and population growth. The fiscal blueprint calls for $34.4 billion in state spending, a 4.2 percent increase from the budget you signed into law last year.
Instead of pursuing this ultimately unsustainable course, public officials should be striving to make the Garden State more attractive for businesses. Currently, New Jersey ranks 49th out of 50 states on the non-partisan Tax Foundation’s State Business Tax Climate Index, which accounts for corporate, individual, sales, and property tax rates, among other factors.
Our members in New Jersey hope you will carefully consider our concerns with the recent budget proposal. Taxpayers throughout your state are counting on your leadership.
Sincerely,
Lee SchalkState Government Affairs Manager