The big political question in the state these days is, how will Gov. Phil Murphy pay for all the promises he’s made? The liberal think tank New Jersey Policy Perspective recently came up with a way for him to raise $2.4 billion. Chief Political Correspondent Michael Aron joins us now with more on that.
Aron: Sheila Reynertson of New Jersey Policy Perspective recently laid out a scenario in NJ Spotlight. Raising the state income tax on the wealthiest 5 percent of New Jerseyans would bring in $1 billion, restoring the estate tax that was killed as part of the Transportation Trust Fund deal in 2016 would bring in $500 million, closing two corporate loopholes on hedge fund managers and losses carried forward would bring in $290 million, and restoring the sales tax to 7 percent, where it was before it got whittled by a fraction in the TTF deal, would bring in $600 million. That’s a total of about $2.4 billion. Here to talk about it is the president of New Jersey Policy Perspective, Gordon MacInnes. Gordon, let’s start by raising the income tax on the wealthiest 5 percent. Do you know where that cutoff would be?
MacInnes: It would be between $250,000 and $300,000, in terms of family income.
Aron: So that’s even more ambitious than Gov. Murphy’s so-called millionaire’s tax.
MacInnes: Yes it is. The millionaire’s tax by itself would bring in about $600 million. Putting it on the total 5 percent, the upper 5 percent, would bring in another $400 million, roughly.
Aron: That actually brings the threshold pretty low. Almost to the middle class when you’re in the $200,000 to$250,000 range.
MacInnes: That’s right, I think that’s correct. Two workers in a family, yeah, and quite a few would be affected. The rate of increase for families in that situation would be much lower than it would be for families in the millionaire class.
Aron: Do you know what the rate would be? Would it be 10.75 percent as the governor proposed?
MacInnes: Not at the $250,000.
Aron: Right now the top rate is 8.97.
MacInnes: That’s right.
Aron: What would it be under this proposal?
MacInnes: It would go to 10-plus percent.
Aron: And then we’d hear the argument in the Legislature that this is going to cause wealthy people to leave the state.
MacInnes: That’s been a fable for years and generations. When you look at the returns that come in every year, actually we’ve increased the number of people reporting incomes of over $500,000, which are captured in the reports. We’ve increased that fivefold in the last 15 years. The idea that some people are leaving the state is correct. The idea that some of them are leaving because of the taxes on high incomes is also correct. The numbers are very, very small and have nothing to do with New Jersey’s growing financial problems.
Aron: What do you think the political prospects are of getting an income tax hike on incomes over $250,000 through the Legislature?
MacInnes: Well, if the prospects are not very strong for getting it on households with $1 million, I think trying to get a higher tax on households with less than $1 million is not promising right now.
Aron: What about the estate tax? Is there any appetite in Trenton do you think for restoring the estate tax? It was killed as part of that TTF deal.
MacInnes: It was killed two years ago, over a two-year period.
Aron: We still have an inheritance tax. We had two taxes, now we have one.
MacInnes: That’s right. I think, first of all, there’s been very little public mention of it by either the legislative leaders or by the governor himself. It doesn’t make sense to me that you would not try and do two things at once, restore the estate tax and take advantage of the fact that for every household in New Jersey except for maybe a couple dozen, the increase in the federal threshold for the estate tax at the federal level is now so high that practically nobody in New Jersey qualifies. So restoring the New Jersey estate tax would have an impact that is very slight on the estates that would be covered by it. But you could also say that because there’s not going to be any federal estate tax on the overwhelming majority of New Jersey estates, that you could actually move the tax rate up a little bit and collect more.
Aron: What about restoring the sales tax to 7 percent? What’s the rationale for that?
MacInnes: Well the rationale is most of us aren’t very good at fractions, and most people don’t notice that the taxes have been lowered for them. If you’re going to buy a Lamborghini, yeah, you might notice that the sales tax has been reduced by a small percentage, but most of us aren’t in that category. So when you go to buy something at Staples, you’re not going to notice the difference between where the sales tax was and where it is now.
Aron: Back to the millionaire’s tax, did I read in Policy Perspective that the wealthy are going to get an average of $30,000 in tax savings from the federal tax reform?
MacInnes: That’s the minimum number. There are estimates that go much higher than that, so that people who would be influenced at the million dollar plus level, I’ve now seen federal studies that give credibility to it, that those families are going to see a $70,000 increase on average each year.
Aron: So maybe they could afford a little more for the state income tax?
MacInnes: They certainly could, I think so.
Aron: What do you think of Gov. Murphy’s job performance so far?
MacInnes: I think he’s put his finger on a lot of big problems in the state. I think he’s shown very good leadership and very clear enunciation on issues that affect many New Jerseyans, whether it has to do with the restoration of women’s health funding just recently, whether it has to do with raising the minimum wage, earned sick days. He is in support of things that would benefit literally millions of struggling New Jerseyans, and I think he’s done a very good job on that.
Aron: But the rubber hits the road on March 13 with his budget address.
MacInnes: And on that, we’ll have to wait and see.