Government should not reward bad behavior. Such as, say, not paying your taxes. And one-shot revenue sources make for unstable state budgets and credit downgrades. That being said, money is money. And if temporarily waiving some penalties for tax evaders can bring needed cash into state coffers — and hopefully replace some of Gov. Phil Murphy’s proposed $1.5 billion in tax increases — we’ll take it.
Assembly Speaker Craig Coughlin (D-Woodbridge) and Assemblyman Robert Karabinchak (D-Edison) have proposed a three-month tax amnesty program that would begin July 1 and apply to tax liabilities incurred between Jan. 1, 2014, and Dec. 31, 2016. Tax delinquents would still have to pay their back taxes and interest, but any recovery fees or civil and criminal penalties would be waived. Any company or individual currently charged or under criminal investigation for a tax issue would not be eligible for the program.
And, if you are among those distressed by the idea that such amnesty programs allow tax evaders to get away with cheating the state, you’ll like this proposed provision: Any tax delinquent who does not take advantage of the amnesty program will be hit with an additional 5 percent penalty on the amount owed.
The idea has the support of Senate President Steve Sweeney (D-West Deptford), which means it won’t run into any roadblocks in the Senate. And Gov. Phil Murphy is reluctantly offering his possible support, saying it is a “good idea” that he will consider.
Murphy, who has proposed a $37.4 billion 2019 budget that would raise taxes significantly to fund a host of social, education and transportation programs, is concerned that tax amnesties are one-shot revenue enhancers. His budget proposal sensibly holds such non-recurring revenue sources to less than 1 percent of total spending.
We share that concern. But, if used sparingly, tax amnesties are less objectionable than most other one-shots.
And New Jersey has used tax amnesties sparingly, resorting to them only five times since 1987, under both Democratic and Republican governors.
It is apparently unclear how much in delinquent taxes is currently owed the state, and the amount generated by previous amnesties has varied widely. According to the Assembly Majority Office and reporting by NJ Spotlight, $87 million was raised in 1987, $244 million in 1996, $277 million in 2002, a whopping $725 million in 2009, and $75 million in 2014.
The downsides of tax amnesties are clear: They do “reward” bad behavior. They are one-shot revenue sources. And if the state uses them too often, it is encouraging delinquent taxpayers facing large penalties to delay paying up until the next amnesty comes around.
But, as Coughlin said, “Every potential dollar counts.”
Sure, cutting spending instead of raising taxes would be far preferable and is the ultimate answer to New Jersey’s fiscal challenges. But considering Murphy’s activist agenda and Democratic control of the Legislature, that isn’t going to happen this year. One more tax amnesty, as much as it rankles, is worth the moral cost.