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I need a new car. The 1986 Nissan I drive doesn't have a lot of miles left.
But I'd like a little help. Specifically, I don't want to pay the sales tax on the next car I buy. My driving tastes (as you can tell) are rather modest, so let's say I buy a $15,000 car. That means I want the State of New Jersey to exempt me from $900 in sales tax.
Now, I realize that even though they are talking about giant budget surpluses in Trenton, the State of New Jersey might not have money sitting around for this purpose. So we're going to have to get a little creative. Here's the plan: the state sells a bond to get the money to buy a car for me. The private investor who loaned the state the money by buying the bond gets paid back with interest. The interest comes from the monthly lease payment I make to the state. And when I finish making the lease payments, I own the car.
It's neat, clean and clever—and it saves me $900 in taxes.
Any questions? Yes, you over there. You ask, "Why on Earth would the State of New Jersey want to do this just so I can have a new car and not pay the sales tax?"
I haven't got the slightest idea. All I know is they're doing it for Merrill Lynch. The only differences are that with Merrill Lynch it's computers instead of cars, and they get to skip out on $8.1 million in sales tax instead of $900.
It's all in the package of incentives the state gave Merrill Lynch when the giant financial company said it wanted to build an office complex on what used to be cornfields in the Mercer County town of Hopewell. The state agreed to sell $135 million in bonds to buy computer equipment the company would then lease from the state. There would be no sales tax and when the lease payments are finished, Merrill Lynch owns the equipment.
Last I heard, Merrill Lynch was doing rather well. The ads I see on TV (the cost of which is, of course, tax deductible) convey an image of a savvy group of folks who sure can pick 'em when it comes to finding investments to make money for the customers. I assume they wouldn't build a new 3.5-million-square-foot office complex if business weren't pretty good.
So, like, why can't a company that boasted record net earnings in 1997 of $1.9 billion afford the sales tax on computers?
The answer, of course, is that the company can afford it, but just doesn't want to pay it. And the real difference between Merrill Lynch and you or me is that they have the clout to get the state to pick up the sales tax and we don't.
The state will tell you we're oversimplifying this by leaving out a very important fact: Merrill Lynch is a business. And businesses create jobs and add to the property tax base of the communities where they build. Well, I'm glad that Merrill Lynch is hiring. But, those new employees will have to buy a whole lot of stuff to make up for the $8.1 million in sales tax revenue the state decided to give up to keep Merrill Lynch so bullish on New Jersey. And when the bears take over the stock market again, when business gets bad and Merrill Lynch turns into Merrill Grinch, laying off people faster than you can say, "downsize this, sonny," will the state go back and say, "um, about that sales tax?" Not likely.
As for property taxes, most mayors of small towns will tell you the additional tax revenue that major construction brings usually pays for services that wouldn't have to be delivered if the company didn't come in the first place. It's a wash.
No, the real reason companies like Merrill Lynch get breaks like this sales tax deal is because they can. We're so afraid they will go some other state that we can't say no to anything. And the companies? Well, they get it—literally and figuratively. Look at Merrill Lynch: the company finds this slice of corporate welfare so appealing that now it wants New Jersey to sell another $93 million in bonds to help acquire computer equipment for the rest of Merrill Lynch's offices in the state. When you find a pigeon, why stop with Hopewell?
Now, about my car...
A version of this commentary appeared in The Times of Trenton.
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