(MONEY Magazine) – Reduce central government. cut income taxes. and shove more of the responsibilities of governing back to the local level to give the people more control over their destinies. So goes the new Battle Hymn of the Republicans that so many politicians in both parties are singing these days.

But before you join the chorus, you may want to look at New Jersey, where its politically ambitious Republican governor, Christine Todd Whitman, has become one of the first high- profile officials to actually apply the formula--only to reap all sorts of unintended consequences. For example, though she insists there is no dollar-for-dollar link, for every dollar that state income taxes have fallen since she came to power, property taxes, which were already among the nation's highest, have risen by nearly $4. Billion-dollar deficits loom ahead. And some of the relatively well-off people who voted for her only 18 months ago are now honking for bumper stickers that read: KEEP NEW JERSEY SAFE--SEND CHRISTIE TO WASHINGTON.

Gov. Whitman is not a villain. By all accounts, she's an intelligent, imaginative and hard-working executive, who could be Vice President or even President some day. Nonetheless, she made a crucial mistake in her 1993 campaign. She promised to give the voters what they really want: lower taxes, better services--and no sacrifices. No one can deliver on that, including her. But until voters stop kidding themselves about the panacea of painless tax cuts, more politicians--including others as talented as Whitman--will keep pandering to the public by producing sham budgets that neither raise enough revenues nor reduce nearly enough spending programs. (For more on taxes and the middle class, see our special report on page 100.)

Whitman sprung her gain-without-pain scenario late in her campaign. Down by 10 percentage points against Jim Florio, the liberal Democratic incumbent who had raised taxes by $2.8 billion, Whitman suddenly promised to lower the state income tax by as much as 30% over three years. The next thing either of them knew, Florio was waving good-bye and Whitman was slicing the income tax by an initial 5% to save $140 million in '94. All told, after the 10% cut this year and the final 15% next year, state budget experts estimate New Jersey will be collecting around $1.2 billion less than it would have gotten otherwise, $4.4 billion vs. $5.6 billion.

That means the state will have a billion dollars less to support its public schools. To make up the shortfall, municipalities will be forced to slash education budgets or crank up property taxes--or both. The law is clear. The state constitution requires that every cent of income tax revenues must be spent on public education "exclusively for the purpose of reducing or offsetting property taxes."

The spiral appears to have begun. With fewer tax dollars flowing back down from Whitman's statehouse, around 80% of the state's 567 municipalities boosted property taxes by an average of 5% to raise an extra $536 million last year. Those increases wiped out the income tax savings almost four times over.

This income vs. property tax trade-off is bad medicine, lousy politics and questionable social policy. The income tax savings go largely to the well-off. That's only logical: They make the most income; they get the biggest break. Still, more than 52% of those savings went to the top 16% of earners, those making $75,000 and up. Meanwhile, property tax hikes, which are not moderated by one's income or ability to pay, tend to hit homeowners in the poorer counties harder than those in richer areas. Simple logic again. Better-off counties have more tax sources to draw on. For example, the typical property tax increase in struggling Essex County last year was nearly six times larger than the income tax cut, while the ratio in privileged Somerset County was less than 2 to 1.

In all, the typical middle-class household saved only $50 in state income taxes on its $48,357 income but had to shell out an extra $175 in property taxes on its $160,000 single-family home. Furthermore, Democratic State Sen. Bernard Kenny notes that it is not unusual to see citizens paying property taxes that are six or seven times larger than the 2% of their earnings they hand over in state income taxes, on average, after deductions. "That's what's bad," he says, "and that's what's going to get worse." Steve Elliott, a corporate financial officer living in picturesque Glen Ridge, doesn't doubt it. Weighing his $90 income tax break against his $500 property tax hike last year, he says: "We got whacked badly, and I fear it'll only get worse."

In some counties, taxpayers alarmed at the prospect of watching the quality of their local schools decline while their property taxes soar are already protesting to school boards and vowing never to vote for Whitman again.

Yet Whitman seems trapped in her tax-cutter's armor. She's tried a couple of maneuvers--but with mixed results. For one thing, she's declared that New Jersey's public employee pension fund is so grossly overfunded that the state can afford to cut its contribution by $3.5 billion over four years without jeopardizing future pensioners. Her decision comes in handy. The money she saved helped her to eliminate the state's $1 billion budget deficit last year. Critics, however, denounce the pension cut as a shortsighted shell game.

Some of her other ideas are even more controversial. For example, she's proposed a series of fee increases, including such wildly unpopular notions as charging motorists $5 to visit a motor vehicle division office ("it's a cover charge," sniffs one Democratic official) and sales taxes on pennies-off supermarket coupons for nonfood items. ("Bizarre," says one disgusted taxpayer.) And finally, she's loosened the budget limits on municipalities and school districts to enable them to borrow and spend even more than they could under Florio, the liberal.

"She says she's cutting waste, fat and fraud," says Democratic assembly member Loretta Weinberg of Teaneck. "But she's actually cutting school aid, property tax relief and pension funding. If she thinks that's waste and fraud, she doesn't understand the English language."

Political opponents also delight in describing how Whitman's tax policies are benefiting her personally. Assuming she and her husband John, a Wall Street consultant, continue to make the $2 million to $3 million a year they reported for 1992 and '93, her income tax cut figures to save them nearly $1,000 a month. In addition, longstanding liberal tax abatements for agricultural land are cushioning their two homesteads (covering nearly 300 acres) from the state's rising property taxes. For example, the Whitmans appear to be getting roughly a $1-million-a-year break on one parcel alone. And it's all legal.

Nonpartisan experts are critical as well. One of the country's leading state tax experts, Hal Hovey, editor of the bimonthly newsletter State Budget & Tax News, told Money's Peter Keating flatly: "I don't think her math works." He added, "Whitman's plan is bound to leave the state budget unbalanced, or it will dramatically shift the tax burden toward property taxes, even though that is what she said she would not do."

Clearly, Whitman needs some fresh ideas--and she needs them fast.

Here's a suggestion. She should start by going on television statewide and tell the citizens the truth: They can't get lower taxes and better services without making some sacrifices. The fact is that previous administrations have steadily raised income taxes along with state aid to schools--and local property taxes still kept climbing. "In the 20 years for which I have data," notes Robert Friant, a spokesman for New Jersey's Department of Community Affairs, "property taxes have never gone down." The obvious conclusion: Local communities are spending more than they should.

To Whitman's credit, she has established audit teams to help municipalities adopt operating efficiencies to produce tax savings. But she must do much more to convince taxpayers that, say, the shore town of Ventnor indeed does have too many fire fighters on the payroll (one per 274 people, vs. the state average of one per 1,165). That Bergenfield is overpaying its cops ($22,948 to start for high school graduates and up to $58,534 after five years without a promotion). That state employees should be compelled to contribute something toward their health plans, which are now not only totally free but also more generous than nearly any other comparable plan in the country.

And, above all, that taxpayers can no longer afford to sustain the bewildering proliferation of overlapping local governments that has bastardized legitimate home rule. Today one-third of Jersey's 567 municipalities serve fewer than 5,000 residents. At least five towns have 22 people or fewer. In addition, there are 611 school districts, more than 400 municipal authorities with taxing power such as sewer districts, and 21 counties. "We have government up the wazoo," says the state's Friant. According to one analysis, if just each of the 113 municipalities with fewer than 2,500 residents were consolidated with a bigger neighbor, property owners would save at least $600 million a year, or about 5% of the state's property tax bill--and the people would get better services.

A lot of local pork-rolling politicians would lose their jobs in the process. Voters might like that. But they'd also have to accept the fact that a far greater number of ordinary citizens would get laid off too: overpaid school administrators as well as overworked schoolteachers, out-of-shape police captains along with outstanding beat cops, deadheaded public health bureaucrats and dedicated nurses who care for the institutionalized elderly.

In short, everyone would be called on to make sacrifices. That is the bottom line here. Steve Elliott from Glen Ridge says: "Either we're going to pull together as part of a civilized society, or we're going to decide it's every man for himself. And then you don't have society, you have anarchy."

Elliott's right. Sooner or later, the national politicians singing the new Battle Hymn will have to reach for a higher note: We can give you less government that's more efficient, but only if you agree to give a little too. Gov. Whitman could be one of the first to step up to the mike. Otherwise, she runs the risk of getting elbowed off stage by the same people who just put her in power to deliver on her impossible promises.

FRANK LALLI, Managing Editor