A cash infusion for NJ Transit, more money for public school and some property tax relief, that’s what the new $37.4 billion budget signed by Gov. Phil Murphy. It’s raising $1.5 billion in new revenue to pay for it in new taxes that won’t impact most New Jerseyans, according to NJ Spotlight reporter John Reitmeyer.
“The final version specifically targets wealthy people and wealthy corporations with the big tax increases,” Reitmeyer said.
A new 10.75 percent tax on the 1,760 people in New Jersey earning more than $5 million, or penta-millionaires, would raise $280 million. Boosting the corporate business tax, or CBT, on businesses making more than $1 million up to 11.5 percent for two years, then 10.5 percent for two years, would raise $425 million.
“That’s really trying to be surgical, to not put any pain on the average New Jersey resident, direct pain on the average New Jersey resident, and keep it on those who maybe have the means to absorb some these new costs the most,” Reitmeyer said.
The budget also closes corporate loopholes. One fix called combined reporting would raise $200 million by preventing companies from moving profits out of state to avoid taxes. Repatriation would generate another $200 million by taxing profits parked in offshore shelters. The state also hopes to make $188 million by taxing online retailers from out of state. Businesses call these measures devastating.
“There are so many challenges to this budget and the tax increases across the board. The CBT surcharge, the increase on millionaire’s tax over $5 million, which is a tax on small business, the repatriation language and combined reporting — all these things alone would be concerning. You pile them all together, and we’re very concerned,” said New Jersey Business and Industry Association president and CEO Michele Siekerka.
“They’re doing just fine. They have figured out how to game the system through tax incentives, tax breaks, an army of tax lawyers to make sure their effective tax rate is lower. It’s time to even the playing field for all businesses that operate in New Jersey,” said Sheila Reynertson, a senior policy analyst at New Jersey Policy Perspective.
A 90-day tax amnesty program could raise $200 million, a one-shot deal. The state will also collect 50-cent per ride surcharges on Uber and Lyft, impose the sales tax on home shares like Airbnb and tax the liquid nicotine in e-cigarettes.
“Those are sort of modernization taxes, where you’re kind of bringing the tax code up to date with different services that have become popular since the tax code was originally written,” said Reitmeyer.
“Quite frankly, costs are going up in New Jersey and we need that kind of revenue to keep the lights on in New Jersey,” Reynertson said.
What do New Jersey residents get in return for that new revenue? The budget keeps some of the governor’s promises: it pumps $3.2 billion into the pension system and gives NJ Transit $242 million, the amount originally requested in Murphy’s initial budget proposal. The transit system’s been underfunded for the past eight years.
“It will get us going, but it certainly won’t fix NJ Transit forever, and I don’t even think the governor would make that claim,” Reitmeyer said.
Public schools will get more money, an extra $402 million, and a new formula championed by Senate President Steve Sweeney will attempt to distribute the money more equitably. No one district will see its aid change more than $3.5 million the first year. The budget lets homeowners deduct $15,000 in local taxes from their state tax bill, and also restores $150 million that had been cut from the Homestead Rebate, a popular property tax relief program.
“So for someone who has a bill over $10,000 that gives them a little bit of a break. Does it make property taxes fixed? No, but it helps cushion the blow,” said Reitmeyer. “If you’re living on a fixed income, a couple hundred dollars off your property tax bill is pretty meaningful.”
Another plus for families is that the budget creates a new tax credit for child care and dependents and will gradually raise the Earned Income Tax Credit to 40 percent of federal levels. One major benefit comes from what the budget doesn’t do. It doesn’t restore the sales tax back to 7 percent.
“If you’re one of those tax-weary New Jersey residents who anytime you hear about a tax going up, you want to see more spending cuts, and you think this state budget is already a little too excessive, that is certainly a feature that you’re going to like, that there is $580 million that’s going to come from someone else,” Reitmeyer said.
“It’s time we talk about getting our spending under control. This budget is an 8 percent increase in spending, eight percent. We can’t afford this,” said Siekerka.
All sides agree, New Jersey could benefit by crafting careful budgets on a three-year fiscal cycle instead of these one-year budgets with one-shot revenues. But New Jersey’s budget is based on the political calendar with all the pitfalls that entails.