NJ Fiscal Folly

Wednesday, April 05, 2006

Hidden Tax Increases

Politicians love to raise taxes without leaving any fingerprints at the scene of the crime.

Gov Corzine's budget for FY 2007 includes $1.8 billion of "revenue solutions", mostly explicit tax increases (see page 55). However, this list does not include any reference to his $430 million hospital tax.

The hospital tax proposal has the apparent benefit of attracting $215 million in new Federal funds for NJ. However, Corzine also claims that since NJ hospitals will both pay and receive $430 million, there's no net cost. This may be true in the aggregate, but it omits the fact that his proposal will result in a net transfer of hospital tax revenues from suburban to urban hospitals. Based on available information, it's hard to quantify the net transfer, but my rough estimate is at least $200-250 million.

In total, NJ hospitals only make about $150 million per year, a 1% operating margin. There is no way the suburban hospitals can absorb the new tax. Therefore, a large portion of the hospital tax will ultimately shift to NJ taxpayers and NJ businesses, through higher fees and higher health insurance premiums. The tax increase is hidden but real. Corzine evades responsibility.

Update: My estimate was high. According to the NJ Hospital Association, 49 "losing" hospitals would transfer $116 million to 25 "winning" hospitals. My basic point remains unchanged.

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