Whitman’s Gamble : The New Jersey Governor Is Cutting Income Taxes. It’s Improving the State’s Image, but How Much Will Taxpayers Benefit?

The old plastics factory was fading into a blue-collar phantom, the work force down to 48, the future bleak.

Then came a promising new technology--and an ambitious new governor searching for ways to make employers feel welcome in a state recently hammered by recession and job flight. Last year, the AlliedSignal Inc. plant sprang back to life.

“Here’s the government calling me and asking if they could help. It took me off guard,” said Gary D. Wiegner, manager of the facility that is developing a product used in liquid-crystal displays. “Now we’re considering putting more manufacturing operations here, which I know we wouldn’t have considered before.”

Greetings from the Garden State, home to 127 miles of Atlantic coastline, a tangled bureaucracy of 567 cities, towns and villages, and a sweeping experiment in tax cuts that is being watched in statehouses from Sacramento to Albany.

The architect is Christine Todd Whitman, whose pledge of a 30% state income tax cut carried her into the governor’s mansion last year. She has become a Republican star, adding fire to a tax-cut movement that has spread to state capitals across the country.

More than 30 states, including California and New York, are contemplating tax cuts or have enacted them, according to researchers at the State University of New York in Albany.

Much of the debate about Whitman has centered on the impact of her tax policy. But New Jersey’s experience is also a case study in image changing: Like California, New Jersey has been an economic punching bag for the past few years and is trying to re-emerge as a powerhouse.

In that quest, the state is trying to quit a club of other high-cost, high-tax and high-red-tape states, including California, that have long enjoyed high living standards but have suffered serious setbacks in the 1990s. Jobs have been sacrificed to low-cost rivals in the Rockies and the Southeast, and urban cores have been harmed by the flight of decent-wage, blue-collar employers.

Whitman is trying to turn things around. While the precise economic impact of her tax cuts remains questionable, she argues that they have already paid dividends, breathing new life into an old economy and encouraging employers to see New Jersey in a fresh light.

“We’re finally doing better than Pennsylvania, better than New York,” Whitman said in a recent interview, “which wasn’t the case before we started making some of these changes.”

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Even at this early date, it’s possible to glean some preliminary lessons--and warnings--from New Jersey, symbolic leader of the state tax-cut wave:

* The tax cuts are more a symbol than a windfall. (A couple earning $50,000 would save just $307 by next year under Whitman’s plan.) But the symbolism is potent, a demonstration of easing financial burdens rather than increasing them.

* The cuts may also prove illusory to households, depending on the actions of local governments. The highly inflammatory issue of cutting services or raising other taxes to pay for these cuts is being pushed down the pipeline from the statehouse to city hall.

* Even in tax-cutting New Jersey, the popular notion of “smaller government” remains elusive. Whitman’s current budget proposal is hundreds of millions of dollars higher than the last budget of her Democratic predecessor, James J. Florio.

Still, the strategy has been paying off for the refined, soft-spoken governor known as Christie, who once traveled around the country for the Republican National Committee to hear the concerns of inner-city residents and others outside the GOP fold.

About eight out of 10 corporate executives rated Whitman’s performance as “good to excellent” in a survey conducted by the New Jersey Business & Industry Assn. The public is also pleased, with 56% giving her high grades, up from 37% after she took office in 1994, according to a February poll by the Newark Star-Ledger newspaper and the Eagleton Institute of Politics at Rutgers University in New Brunswick.

Certainly, the practice of politics ought to come naturally to the 48-year-old Whitman, who has been immersed in a political atmosphere since her childhood on a sprawling farm in northwestern New Jersey.

Whitman grew up in the genteel, politically moderate milieu of Eastern Establishment Republicanism. Her father, Webster Todd, headed the New Jersey Republican Party and advised President Dwight D. Eisenhower and other prominent national Republicans. Her mother, Eleanor, served as vice chairwoman of the Republican National Committee and was also a prominent presence in the state GOP.

In 1990, Whitman narrowly lost a Senate race to Democrat Bill Bradley. Three years later, she was elected governor, defeating Florio 51% to 49%.

(For all her political acumen, she is not above the occasional snafu, however. Just last week, for example, she apologized for saying that young black males compete to impregnate women. She said she never meant to imply that such behavior is limited to the black community.)

During her brief tenure as governor, at least some employers say, they have come to feel welcome and are more inclined to stay in New Jersey, keeping jobs and tax revenue in the state.

“You make a call (to the bureaucracy) and you get action like I’ve never seen in my life,” said Kenneth Silverman, president of Silver Line Building Products, a window manufacturer that is now expanding jobs in New Jersey rather than shifting them to the South.

Far from the corporate suite, there are other perspectives on Whitman. Consider the view from Elizabeth, N.J., an old blue-collar port of 110,000 people just across the bay from New York’s Staten Island.

Outside its red-brick City Hall, beyond the park named for Winfield Scott, a 19th-Century general, spreads a city with costly problems. Median family income was a third below the state level, according to the 1990 census. Last year’s unemployment rate of 11.6% far exceeded New Jersey’s 6.8% rate.

“The question I get asked most often at town meetings is ‘If the governor can do it (cut taxes), why can’t you?’ ” said Elizabeth Mayor J. Christian Bollwage.

But constituents, he is quick to add, often fire away with other questions, such as “Why can’t I get my handicapped child into a program--it’s your fault, Mayor. And why don’t we have more police protection?”

Bollwage is voicing the great fear in New Jersey: that income tax cuts inevitably will create pressure for local governments to raise their own taxes and fees as the spigot of state aid is slowly tightened.

Such concerns about the ripple effects of tax cuts are not limited to New Jersey. For example, in California some analysts argue that Gov. Pete Wilson’s proposed tax cuts would also cause stresses and strains, though Proposition 13 shields Californians from property tax hikes. Proposed federal cutbacks to the states could add to the squeeze.

Whitman has cut state income taxes by 15%, and she plans another 15% cut for 1996, completing the promised 30% reduction a year ahead of schedule.

Meanwhile, local property taxes have been rising, continuing a decades-old pattern of routine increases. Last year, as Whitman’s program began to kick in, they went up 5.4% statewide. As some see it, there is only one slim chance that the pattern will be stopped: Local officials would have to say no to schools and municipal employees when they seek higher salaries and bigger budgets.

“The battle lines will be drawn this coming year,” said James W. Hughes, acting dean of the School of Planning and Public Policy at Rutgers University.

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In fact, Whitman’s agenda has touched off several battles. On one level, the conflict is over particulars of the budget: Critics say the governor has relied on gimmicks to balance it, such as one-time savings through debt refinancing.

State spending is not falling overall, despite Whitman’s call for government that is “leaner and smarter.” Depending on which party does the arithmetic, outlays this year will be from $430 million to $1.1 billion higher than Florio’s last budget.

“This is feel-good Reaganomics all over again,” said Senate Democratic Leader John A. Lynch. “Tax cuts are good--if they are backed by state spending cuts and not paid for by borrowed money and by higher property taxes for the middle class--as was the case last year.”

But there is an entirely different battle taking place as well, a larger theme that is rarely discussed. That is the fight for New Jersey’s economic identity, a battle with long-term implications for the state’s quality of life.

New Jersey was once dismissed as New York’s polluted sidekick, a small state with an unusually high level of lunch-bucket, old-line factory jobs. But by the 1980s, much of the landscape had become prototypal suburbia.

Modern jobs--in campus-like research settings and glass-and-steel office buildings--were spreading so rapidly that emerging New Jersey communities were celebrated as examples of the future in the 1989 book “Edge City” by Joel Garreau.

But then came the recession, apparently exacerbated by Florio’s income tax hikes, and the good times hit a wall.

In the past two years, the wall has started to crumble. Now Whitman and her supporters want residents to feel good about the economy.

This is all part of the image make-over, a bid to shift attitudes so investors will increasingly see the state as a desirable place to set up shop, at least within the Northeast.

“Cutting taxes, from my perspective, is to make the state more economically competitive, to encourage the businesses that are here to stay and expand, and to encourage new business . . . to come to New Jersey,” Whitman said.

She can claim a few successes on that score.

When AlliedSignal was considering its recent expansion, it needed approval of three regulatory permits related to air pollution, spills and storage of materials. State officials guided the process along last year, speeding up the creation of 55 jobs at the Elizabeth facility, reversing years of decline.

A few miles to the south in Carteret, Frank P. Conway, plant manager at the Ball Glass Container factory, recalls how a furnace overhaul costing several million dollars, forced the question: Stay in New Jersey or leave?

A key factor was whether state officials would allow Ball to get rid of a required piece of environmental equipment that was expensive and time-consuming to maintain. Factory officials say they did not need the device, known as a precipitator, to operate within clean-air guidelines.

“I said to my company, ‘The governor is on the TV all the time saying, ‘If you’ve got a problem, call us,’ ” Conway said he told headquarters in Muncie, Ind.

Calls were made, meetings with state officials held, and, within weeks, the factory that employs 280 people chose to stay put. “That’s as simple as it was,” Conway said.

To be sure, companies continue to bail out of the state. The Business & Industry Assn. survey last year showed that a majority of businesses believe New Jersey has yet to make progress in easing red tape, although the number of optimists has grown sharply.

The economy’s performance remains at the heart of debate over Whitman’s impact.

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Overall, New Jersey gained 60,000 jobs last year, an increase of 1.7%, as the pace of recovery picked up with a powerful assist from the nation’s robust economic expansion. All agree that a statewide upturn is in progress; the consensus evaporates on whether Whitman’s tax cuts deserve any of the credit.

“The tax cuts may be directly responsible for some jobs--but less than she thinks,” said Donald M. Scarry, a private economist in suburban Mt. Laurel and a member of Whitman’s council of economic advisers.

But the governor proudly notes that New Jersey’s increase in jobs exceeded that in nearby New York--which had less than 1%--and Pennsylvania, with 1.3%, according to Regional Financial Associates in West Chester, Pa.

She maintains that over the course of two four-year terms, her policies will lead to a bonanza of 450,000 jobs.

And to those who believe her real agenda is a spot on the next Republican national ticket, Whitman is quick to add, “I intend to be around for eight years.”

State Income Tax Rates

State income taxes around the nation vary widely on the rate and per-capita burden. The amount actually paid depends upon how progressive a state’s tax structure is and income levels within the state.

HIGHEST RATE

Highest Per capita income average of State tax rate taxes paid North Dakota 12.0 $197.93 California 11.0 551.09 Montana 11.0 425.50 Hawaii 10.0 787.47 Iowa 9.9 521.33 Oregon 9.0 786.02 Minnesota 8.5 735.43 Maine 8.5 496.32 New Mexico 8.5 326.07 Idaho 8.2 544.38

LOWEST RATE

Highest Per capita income average of State tax rate taxes paid Colorado* -- 494.88 New Hampshire*** -- 31.80 Tennessee*** -- 18.16 Alaska 0 0 Florida 0 0 Nevada 0 0 South Dakota 0 0 Texas 0 0 Washington 0 0 Wyoming 0 0

- Note: The highest income tax rate figures are for 1994 except for New Jersey. The per capita average of taxes paid is taken from 1993 tax return statistics.

Sources: Bureau of the Census: National Conference of State Legislatures.

MIDDLE RATE

Highest Per capita income average of State tax rate taxes paid Delaware 7.7 733.05 North Carolina 7.7 574.80 Kansas 7.7 411.06 New York 7.5 840.80 Ohio 7.5 425.74 Utah 7.2 452.74 South Carolina 7.0 410.32 Oklahoma 7.0 402.22 Arkansas 7.0 373.41 Arizona 7.0 350.77 Wisconsin 6.9 686.28 Nebraska 6.9 426.30 New Jersey 6.6 552.16 West Virginia 6.5 341.30 Massachusetts 6.0 894.03 Maryland 6.0 620.27 Georgia 6.0 490.08 Kentucky 6.0 457.49 Missouri 6.0 383.32 Louisiana 6.0 216.46 Virginia 5.7 552.27 Alabama 5.0 318.34 Mississippi 5.0 222.34 Connecticut 4.5 687.81 Michigan 4.4 549.02 Indiana 3.4 491.30 Illinois 3.0 411.60 Pennsylvania 2.8 386.61 Rhode Island** -- 497.23 Vermont**** -- 496.22

* State income tax rate structure is 5% of federal taxable income.

** State taxes residents based on 27.5% of their federal income tax liability.

*** State taxes only dividends from stocks and interest on bonds.

**** State taxes are 25% of federal tax liability.

- To reflect Gov. Christine Todd Whitman’s proposed 30% tax cut, New Jersey tax rates fell by 5% in 1994. A further 10% reduction in 1995 caused rates to end at 6.6%. Whitman’s 1996 budget proposes that taxes fall an additional 15% to a rate of 6.37%

Researched by JENNIFER OLDHAM / Los Angeles Times