Hard-up states try a carrot - or stick

In a sure sign of budget troubles, New Jersey has declared its fourth tax amnesty in 22 years, hoping to raise $100 million.

Mayor Nutter and Gov. Rendell, on the other hand, are cracking down on scofflaws, seeking penalties as well as back taxes.

Both tactics raise cash fast in strapped times. While amnesty has worked well for New Jersey, the approach can backfire, experts say.

States opt for amnesty when they don't want to raise taxes and have already slashed programs, said Verenda Smith, spokeswoman for the nonprofit Federation of Tax Administrators in Washington.

"If you chart [amnesties] against recessions, you see the same pattern," she said. "A state doesn't print money, so where is it going to get money?"

Gov. Corzine signed a state-tax amnesty into law March 17. Starting May 4, taxpayers can pay bills due between Jan. 1, 2002, and Feb. 1, 2009, without penalty. After June 15, they face a 5 percent penalty on top of accrued penalties, interest, and collection fees.

Those under criminal investigation or charged in a state tax matter may not participate. The program "is not all carrot and no stick," State Sen. Stephen Sweeney (D., Gloucester) said in a statement.

The downside to giving delinquents a pass is that it risks irritating taxpayers who file on time, Smith said.

But Assemblyman Louis Greenwald (D., Camden), cosponsor of New Jersey's latest law, said the program might help small businesses that have fallen behind because of hard economic times and parents who have assumed their children's mortgages.

"It's not always a case of bad people. Sometimes it's bad circumstances," he said.

New Jersey is one of at least seven states to declare a tax amnesty in recent months. Requiring only advertising and a bit of overtime, the programs are inexpensive to administer. In New Jersey, they have cost less than $10 million.

"Historically, amnesties meet or exceed collection expectations," said Bert Waisanen, fiscal analyst for the National Conference of State Legislatures in Denver. "But in this recession, we're not sure what to expect."

New Jersey declared tax amnesties in 1987, 1996, and 2002.

In each case, net revenue from the collected income, sales and corporation business taxes exceeded expectations - sometimes by hundreds of millions of dollars. The largest haul was $359 million in 1996.

Of 100 programs in 43 states since 1982, only New York and Illinois have collected more in a single program, according to Federation of Tax Administrators data.

This year, New Jersey has a more "modest" target - $100 million - because of the economy, Treasury Department spokesman Tom Bell said.

Pennsylvania has tried amnesty only once, in 1995-96, and has no plan to do it again, a state spokeswoman said.

Just the opposite: The commonwealth has cracked down on scofflaws, largely by threatening to expose them on an Internet list. Businesses and individuals owing sales or employer withholding taxes are given one last chance to make payment arrangements, said Elizabeth Brassell, Department of Revenue spokeswoman.

"The threat of appearing on the list is what's most effective," she said.

Though most tax information is confidential, Pennsylvania discloses the names through tax liens placed against property.

Since the list debuted in April 2006, Pennsylvania has recovered about $87 million up front in taxes, interest, and penalties and secured payment plans for $21 million more, Brassell said. About two-thirds of businesses have met their obligations and been removed from list.

More than 20 states, including New Jersey, have used a similar tactic.

In Philadelphia in the fall, Nutter began similarly shaming delinquents who owed at least $50,000 in business tax and sending the sheriff to seize their assets. In 2007, Mayor John F. Street tried to recoup millions in real estate tax from about 23,000 property owners.

Experts say that in the long run, enforcement likely yields more revenue than amnesty.

What amnesties "are particularly good at is bringing in cash," Smith said. "If you were to wait and get money with penalties and interest, you would get more money."

Revenue also may decline if taxpayers expect amnesties. Louisiana made offers in 1985, 1987, 1998, and 2001. Now tax collectors there "are crying tears" as residents hold back until the next one, Smith said.

"It's like an early-retirement program: You think you've seen the last of them, but they keep coming back," said Mary E. Forsberg, a former financial analyst with New Jersey's Office of Legislative Services.

When amnesties started, states swore they were one-time offers, Smith said. Then five years later, they're back.

"Nobody's sure what 'too often' means," she said.