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After Christie Vetoes, Pension Battle Heads Back To Court

The most important change was Prieto’s insistence that Democrats pass a “pure millionaire’s tax” that increases the top bracket from 8.97 percent to 10.75 percent only on income above $1 million – and not include a “half-millionaire’s tax” bracket of 10.25 percent on income between $500,000 and $1 million, as suggested by Sweeney. The millionaire’s tax would expire after three years -- enabling the state to catch up on its pension payments -- and would raise $723.5 million in FY15, according to the nonpartisan Office of Legislative Services.

The second Democratic tax bill, suggested by Sweeney, would raise $389 million by imposing a 15 percent surcharge for one year on the corporate income tax, which would hike the effective tax on profits over $100,000 from 9 percent to 10.35 percent.

Tax revenue from the millionaire’s tax and the corporate income tax surcharge account for more than $1.1 billion of the $1.4 billion increase in Christie’s most recent $32.7 billion budget plan, and Christie is expected to veto both bills.

Democrats also included a series of revenue revisions and program changes in the $34.1 billion budget bill they passed -- most of which are expected to fall victim to Christie’s line-item veto power.

Christie has repeatedly refused to restore a 20 percent cut in the income eligibility level he made in 2010 to the Earned Income Tax Credit for the working poor unless Democrats agree to his proposal for an income tax cut. The Democrats’ $56 million restoration of the full EITC is included in the millionaire’s tax bill that Christie will veto.

Christie, who is antiabortion, also will once again veto the $7.4 million for women’s health and family-planning clinics that would draw down more than $66 million in federal matching funds. With Christie’s next veto, New Jersey will have given up the opportunity to draw down more than $330 million in federal matching funds for just $37 million in state appropriations in the governor's five years in office.

Democrats also included $20 million in additional funding for cancer research, doubling the $10 million that Christie cut from the program. It also includes $13.2 million in additional funding for community providers of services to the developmentally disabled; $12.5 million in additional funding for nursing homes; $5 million more for legal services for the poor; $2.2 million extra for services for victims of domestic violence; and $1.6 million for additional tuition assistance for low-income students.

Ironically, the Democratic budget is balanced with a $176 million increase in projected state income tax revenues that represents the full difference between the Christie administration’s final $13.988 billion revenue estimate and OLS’s higher projection. Meanwhile, they chose not to use OLS' sales tax projection, which is $169 million lower than the Christie administration's estimate.

The $176 million increase in projected revenues is ironic, coming on the heels of persistent Democratic criticism of the Christie administration for overestimating revenues. Furthermore, the three bond agencies cited the Christie administration’s three-year failure to meet overly optimistic revenue projections in announcing their decisions to cut the state’s credit rating in April and May.

Christie, who has the sole power to certify revenues, could attack the Democrats for hypocrisy and red-line the $176 million increase in projected income tax collections, or he could quietly accept the increased revenue estimate and add it to the state’s $300 million surplus, which the bond agencies consider dangerously low.

While Christie can use his veto power to kill tax increases and to eliminate or reduce specific programs, he cannot restore taxes or programs knocked out of the budget by Democrats. Therefore, Christie will not be able to do anything about the Democrats’ decisions to cut a $35 million tax on e-cigarettes and a $70 million increase in sales tax revenues that would have been generated by charging businesses in the state’s Urban Enterprise Zone Program the full 7 percent sales tax on their purchases, rather than the 3.5 percent UEZ sales tax rate that they have been paying.

Both taxes were included in Christie’s original February budget plan, but their elimination has been a priority of Republican as well as Democratic legislators.

Yesterday’s legislative debate was a rerun of three years of Democratic vs. Republican debates over the need to raise taxes or cut spending, and over whether tax increases on the wealthy and corporations are an issue of tax fairness or an ill-conceived policy that will drive high-income taxpayers and corporations to leave the state.

“We stand at a watershed moment in New Jersey’s history, where we can either propose real solutions to tough problems or we can point fingers and continue to dig a financial hole that one day may be too deep to climb out of,” said Senate Budget Committee Chairman Paul Sarlo (D-Bergen) chairman of the Senate Budget and Appropriations Committee. “By approving this budget, we chose to make the difficult choices and in a responsible way. The governor has repeatedly created budget deficits and has caused the state's credit rating to be downgraded six times. This budget restores our fiscal integrity.”

Sen. Anthony Bucco (R-Morris), the ranking Republican on Sarlo’s budget panel, disagreed. “With the budget presented today, we are pivoting backwards,” Bucco warned. “We are reverting to the old-failed policies of the past. Increasing taxes and the failure to recognize that we have a spending problem and not a revenue problem, will have a negative impact our economy and all of our residents."

“Today’s budget sends the wrong message to those who live and do business in our state. It says ‘you need to pay even more’ while many of them are still making less,” Bucco said. “The most important relief taxpayers can count on is that the governor still has ink in his red pen and is ready to use it.”

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