Tax Amnesties Rake in Money, Sometimes

New Jersey Governor John Corzine must be breathing a sigh of relief now that his state has recovered over $625 million from a tax amnesty program.

The tax amnesty was a surprising success, and it couldn’t have come at a better time, with the state threatening to withhold property tax rebates and deductions from many New Jerseyans to make up for a severe budget gap. The tax amnesty program was only expected to coax $200 million out of delinquent taxpayers, but it actually ended up raising a windfall for the Garden State.

Other states may well follow suit in an effort to close their yawning budget gaps and avert drastic budget cuts, but the results have been mixed to date. Hawaii ended its tax amnesty program just last week. The state reportedly received a $4 million surge from the amnesty program, but the state is still facing a budget crisis, with tax revenues in May down at least 9 percent from last year.

Ditto the state of Connecticut. Even though more than 3,000 people paid about $14 million in back taxes in advance of last week’s deadline, that still fell far short of the $40 million that was projected to be raised. Connecticut did better with its last amnesty program back in 2002, when it raised $109 million, according to the Associated Press. But back then, eligibility was more flexible and taxpayers could set up payment plans. Now the state is in a hurry to get the money, but with wallets tight these days, taxpayers don’t seem to be ready to part with their money in a lump sum.

Other states may be inspired by New Jersey and announce amnesty programs of their own. They can be a useful way to raise some quick revenue in desperate times and encourage compliance among taxpayers. But they aren’t a sure fix for every state’s budget woes.

If only it were so easy.

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