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TRENTON, NJ-When the state legislature narrowly passed the McGreevey administration’s $23.4 billion budget plan – including a $1 billion increase in business taxes – two weeks ago, many observers predicted that relations between the governor and the business community would sour. Now, the first shots have been fired in a war in the making.

In a letter to Gov. James McGreevey last week, Federated Department Stores chairman/CEO James Zimmerman wrote that “we cannot and will not absorb a $5.7 million New Jersey tax increase without taking commensurate measures to reduce expenditures there…. For the good of New Jersey…this ill-advised legislation should be repealed.”

Among other things, Zimmerman threatened to lay off workers, hire fewer seasonal workers, halt expansion plans in the state, and possibly even shutter some of the company’s stores. The Ohio-based Federated operates 32 Macy’s and five Bloomingdale’s stores in the state, along with three distribution centers. The company’s 11,500 employees put it in the top 12 employers in the state.

Zimmerman concluded his letter by saying that the tax increases had changed the Garden State from “one of the most desirable states in which we do business, into one of the least desirable.” According to figures released by Federated, the company’s profit in New Jersey last year was $58 million and it paid $4.4 million in state taxes. Its tax bill under the new law would be an estimated $10.1 million, or about 17.5% of its total profit.

State officials quickly fired back. First, state treasurer John McCormac challenged Federated to release its federal and state tax returns, and to similarly release the salary and bonus figures earned by company executives.

And McGreevey himself came out swinging, asserting in a statehouse press conference that “Federated’s past actions don’t indicate a high level of ethical corporate behavior. Federated is profitable, its executives are well paid. The irony is that noncommissioned salespeople with the company typically earn between $7 and $8 an hour with no health benefits.”

The governor continued his train of thought at a later public appearance, saying that Federated’s threatening the jobs of workers making $25,000 a year or less, while public records indicate that Zimmerman made $1.7 million last year not counting stock options, “is just wrong. The arrogance of threatening employees who are making minimum wage and in some cases don’t have health benefits – that’s a problem.”

McGreevey also alleged that Federated is facing legal action by investors who say that the retail giant has been releasing “misleading financial data.”

Federated officials did not immediately respond, other than to deny that any workers make minimum wage and that any employees are without health coverage. One observer, who did not wish to be identified, suggests that Zimmerman’s letter was triggered by “Federated’s failure to win a special exemption [to the new tax structure] based on past state tax payments.”

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