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Analysis: Millionaire’s Tax to Close Pension Gap Could Be Headed To Ballot in 2015

Facing a Christie veto, Democratic legislative leaders could use constitutional amendment to raise income tax on wealthy

Stephen Sweeney
Credit: Amanda Brown
Senate President Stephen Sweeney (D-Gloucester)

With Gov. Chris Christie vowing to veto any tax increase, Democratic legislative leaders looking for pension-funding solutions may conclude that their best option is to bypass Christie by putting a millionaire’s tax on the ballot as a constitutional amendment next year.

It is a strategy that the Democratic-controlled Legislature used successfully last year to override Christie’s opposition to hiking the minimum wage from $7.25 an hour to $8.25, with annual increases in future years tied to the rate of inflation. The idea is now being discussed by Democratic legislative leaders as an option for the millionaire’s tax, sources confirmed.

Because Democrats do not have a two-thirds majority in the Senate and Assembly, the governor’s line-item veto power under the New Jersey Constitution gives him virtually dictatorial power over the budget -- as long as the Republican Senate and Assembly minority vote to uphold his veto, as they did when Christie vetoed the millionaire’s tax in past years. But Christie has no veto power over constitutional amendments, and while it would take 17 months for the Democratic Legislature to get the millionaire’s tax on the ballot, Democratic leaders realize that it is the only step they can take without Christie’s support.

With just 14 days to go before the June 30 constitutional deadline for passage of a balanced budget, Democratic leaders have been divided over how to respond to Christie’s decision to cut $900 million in pension funding by executive order from this year’s deficit-ridden budget and to slash the state’s pension contribution by another $1.5 billion in the budget for the coming fiscal year.

Leaders of the state’s public employee unions are putting the pressure on Democratic leaders, especially Senate President Stephen Sweeney (D-Gloucester), who sponsored the controversial pension law that eliminated cost-of-living increases for retirees and boosted pension and health benefit payments for current public employees, to stand up to Christie.

“We expect Senator Sweeney and the rest of the Democratic leadership to abide by the law they passed,” said Hetty Rosenstein, area director for the Communications Workers of America. “State workers have been making higher pension payments every week. We’re expecting the Legislature to make sure that the state government does the same.”

“This year, (Christie’s) willing to break the law all by himself, but next year he wants legislators to be his accomplices,” Wendell Steinhauer, president of the New Jersey Education Association, said at a Statehouse rally of CWA shop stewards last week. “I’m not giving a free pass to anyone who stabs us in the back by going along with his plan for next year. They need to hold the governor accountable in the Statehouse the way we are in the courthouse.”

It would make Democratic budget deliberations easier if the courts ruled on the public employee unions’ challenge to Christie’s pension cuts sooner rather than later.

But Superior Court Judge Mary C. Jacobson’s hearing on the union’s challenge to Christie’s executive order cutting $900 million in pension funding from the Fiscal Year 2014 budget that ends June 30 is not being held until June 25, and the unions’ lawsuit challenging the $1.5 billion pension cut for FY15 may not even be filed until July 1 or later, Steinhaeur confirmed. When Christie signaled in his January State of the State speech that he might not make the required pension payment, Sweeney threatened to shut down the state government if necessary to force Christie to keep the state’s commitment under a 2010 law he signed to ramp up to full actuarially required funding of the pension system, which has a $51 billion unfunded liability, by FY18.

Under the law, the state was required to make a $1.6 billion payment this year and $2.24 billion next year, but Christie slashed the state’s pension payment to $696 million for FY14 and $681 million in FY15 after state income tax revenues plummeted in April. The steep cuts added more than $2 billion to the state’s unfunded pension liability. It also made it clear that Christie no longer intended to ramp up to full funding by FY18, when he would now have to set aside more than $5 billion for pensions in his final budget as governor.

However, Sweeney has been silent on the government shutdown threat since the late April budget crisis. “Democrats realize that the executive branch comes out ahead in the eyes of the public when the legislative branch forces a government shutdown,” said one Democratic insider, noting that President Obama won public support when U.S. Sen. Ted Cruz (R-FL) forced a federal government shutdown last fall. Further, Gov. Jon Corzine gained the upper hand when Assembly Speaker Joseph Roberts (D-Camden) forced a short-lived government shutdown by refusing to pass a state budget in 2007.

And while a Fairleigh Dickinson University Public Mind poll reported two weeks ago that 63 percent of New Jerseyans believe the state should honor its pension payments rather than cutting benefits, Democrats believe much of the public would side with Christie if they shut down the state government over the state’s failure to make a scheduled pension payment in the middle of a major budget crisis.

Democrats still have the option of passing a millionaire’s tax, such as the $850 million plan proposed last week by Sen. Raymond Lesniak (D-Union). It would raise the current 8.97 percent top income tax rate to 10.75 percent on income over $1 million and 10.25 percent over $500,000; increase the current 6.37 percent rate to 8 percent on income between $350,000 and $500,000; and repeal the estate tax as a sweetener for Republicans.

But Democrats realize that Christie would simply veto any millionaire’s tax, whether they passed it separately or made it part of their own alternative budget bill, as they did in 2011 when budget talks between Christie and Democratic legislative leaders broke down shortly after Christie, Sweeney, and then-Assembly Speaker Sheila Oliver (D-Essex) teamed up to pass the controversial pension bill.

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