Asbury Park Press,Wednesday February 25, 2004

Business Leaders Skeptical of Recovery Claims by McGreevey

By Dennis P. Carmody

In his budget address yesterday, Governor McGreevey took credit for "restoring fairness to a tax system that had been allowed to benefit the few at the expense of the many" and said predictions two years ago that increases in business taxes would hurt the economy had proved false.

Not so fast, say some business leaders.

"We think it's a little early to be patting himself on the back for meager job creation," said Philip Kirschner, president of the New Jersey Business and Industry Association, the state's largest business group.

"It's a little like he has a 3-0 early lead in the first quarter of a football game," Kirschner said. "A lead is nice, but it has nothing to do with how the game ends."

In the new $26.2 billion proposed budget, McGreevy wants to suspend for two more years a rule that allowed businesses to deduct net operating losses of previous years once they returned to profitability. Such a suspension would pour another $275 million into state coffers this year, according to the administration.

The original two-year suspension was part of McGreevey's corporate tax package in 2002, when he raised certain corporate taxes and closed what he called loopholes to help close a $6 billion gap in the state budget. Those changes overall have brought an additional $3 billion into the state over the past two years, and the administration has predicted corporate tax revenue will climb another 6.5 percent this year.

Asking for an additional two-year suspension represents "a broken promise," Kirschner said.

"Businesses counted on being able to take those losses now, and the fact that they can't affects their ability to spend the money on investments like new workers and equipment."

"We think it's a little early (for the governor) to be patting himself on the back for meager job creation. It's a little like he has a 3-0 early lead in the first quarter…..It has nothing to do with how the game ends," said Philip Kirschner, of the New Jersey Business and Industry Association.

Kirschner's thoughts were echoed by others.

"I don't think (the suspension) is very wise," said Barbara Davis, owner of Barbara Davis Employment Services in Freehold and Red Bank. She said the governor should be doing more to encourage business owners.

The association also criticized McGreevey for not allowing businesses to depreciate equipment at the same rate the federal government permits. Starting this year, in an effort to encourage business spending, companies can deduct up to 50 percent of the depreciation of equipment they buy in the first year. State rules forbid that, and will cost business owners an extra $50 million in taxes, the association said.

Davis acknowledged that the business climate seemed to be improving. She said her business started to pick up in September, and January's figures were better than those of a year ago. "It's not a huge improvement," she said. "We still need to do more to improve business in New Jersey."

In his address yesterday, McGreevey contended he is doing just that. He said that the state's jobless rate has been lower than the national rate for nine straight months, a record number of new businesses have been registered over the past two years, and the state has added about 40,000 jobs since the first budget was passed.

"We heard dire predictions about the consequences that would befall our state if we restored fairness to our tax system," McGreevey said of last year's changes. "We were told that closing loopholes in the corporate business tax would destroy our economy and cost tens of thousands of jobs. Every one of those predictions is false."

McGreevey also proposed spending $60 million-a 50 percent increase-on the state's technology tax credit transfer program, which allows high-tech companies to sell certain tax credits to larger companies for cash.

He also cited the new issue of Inc. Magazine, which included Newark and Camden along the top 10 cities in which to do business in the country.

But critics counter that not all the news is good for business owners.

John Holub, state director of the National Federation of Independent Businesses, a group that represents small business owners, referred to the January issue of CFO Magazine, in which a survey of corporate tax officials found New Jersey to be the least fair and most unpredictable state for corporate taxes, as well as the least desirable state in which to relocate or expand, based on those taxes.

The magazine said that was a dramatic shift from its last survey in 2000, when the Garden State didn't crack the top five worst states in any of the categories.

"These are chief financial officers, and they are taking a look at our tax policies and it's a cause for concern, Holub said.

"We heard dire predictions…..We were told that closing loopholes in the corporate business tax would destroy our economy and cost tens of thousands of jobs. Every one of those predictions is false," said Governor McGreevy.

Donald M. Scarry, a Mount Laurel economist, said it's impossible to know the true extent of the impact of corporate taxes on the state's economy.

"Clearly, employment has grown in New Jersey, he said. "The question is, would it have grown even more (without the tax increases)?"