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Talks Accelerate Over Hiking Gasoline Tax in Tradeoff for Cutting Other Taxes

Deal would eliminate or reduce estate, inheritance levies in exchange for raising revenue to fund transportation projects

On the same day that Gov. Chris Christie signaled he’s willing to deal with Democratic legislative leaders who want to raise New Jersey’s gas tax to fund transportation projects, a new report from a liberal think tank urged lawmakers to resist calls for offsetting tax cuts.

The report released yesterday by Trenton-based New Jersey Policy Perspective made the case against a potential revenue tradeoff involving the gas tax and New Jersey’s estate and inheritance taxes, saying it would benefit only the wealthiest residents.

The swap is something lawmakers from both parties have been discussing with more and more frequency in recent weeks as they search for a way to extend New Jersey’s Transportation Trust Fund, which pays for road, bridge and rail improvements throughout the state but is set to go broke by the middle of next year.

A deal involving such a tradeoff, the head of the think tank said, would be uneven, since the two so-called “death taxes” generate a combined $755 million annually, far below the nearly $2 billion needed to sustain the Transportation Trust Fund. Cutting the estate and inheritance taxes would also take revenue away from the state budget at a time when commitments to higher education, public-employee pensions and other priorities are being shorted, he said.

“All you would be doing is digging New Jersey into a deeper hole,” said Gordon MacInnes, the president of the think tank, during a conference call yesterday morning. To fix the state’s transportation-funding problem, his organization prefers extending New Jersey’s 7 percent sales tax to gasoline purchases, with no other strings attached.

The release of the group’s report came as Christie, a second-term Republican now running for the GOP’s 2016 presidential nomination, took a break from his busy out-of-state travel schedule to make a public appearance in New Jersey.

He told a group of business leaders in Morris County that he would “consider any option that’s presented to me” on extending the Transportation Trust Fund as long as it also provided “tax fairness,” according to footage from the event released by his office.

Christie didn’t offer a definition of “tax fairness,” but he identified the estate and inheritance taxes as “incredibly important.”

“We lose thousands, thousands, and tens of thousands of citizens every year as they age because they say to me, what friends of my parents said to me few years ago,” Christie said. “It's not that I can't afford to live here, I can't afford to die here.”

Christie’s remarks came a little more than a week after a revenue tradeoff was openly discussed by top legislative leaders during a business summit held in Atlantic City.

State Assembly members from both parties said during the event that they are willing to negotiate a deal based around hiking the gas tax while also reducing the estate and inheritance tax burden.

Despite the think tank’s protests, such a deal may make the most sense politically for Christie -- both on the campaign trail and at home in New Jersey, where lawmakers are eager to strike a deal and put the transportation-funding issue behind them.

Christie signed an anti-tax pledge drafted by the influential Americans for Tax Reform organization in August, but signing off on a “revenue-neutral” deal that offsets a gas-tax hike by reducing taxes elsewhere would not violate the pact, a spokesman for the organization told NJ Spotlight last month.

Christie appears to be boxed in on the transportation-funding issue, with New Jersey’s 14.5-cent gas tax – the second-lowest among U.S. states – generating only enough revenue to pay off the state Transportation Trust Fund’s significant debt through June 30, 2016, the end of the current fiscal year. His funding plan for the current fiscal year relied on more than $600 million in new borrowing, as well as draining cash balances and tapping several other one-time revenue sources. The governor has yet to say how he plans to sustain the trust fund when the new fiscal year begins on July 1 next year.

Phasing in the tax cuts over time, as some lawmakers have suggested, while relying on some additional new borrowing for transportation projects, could also bring the trade-off closer to being an even swap.

Republicans in New Jersey have long targeted the estate and inheritance taxes since the state is one of only two in the U.S. to levy both taxes. New Jersey’s estate tax threshold is also the most aggressive in the nation, kicking in at $675,000.

The estate tax, as the name suggests, is levied against someone’s estate upon death if it surpasses the threshold. The inheritance tax is typically paid by those who are left a bequest by someone who is not a direct relative, although estates can also arrange to prepay an inheritance tax.

Sen. Steve Oroho (R-Sussex) has been trying for years to convince his colleagues that the estate and inheritance tax burden needs to be eased. He said he’s tracked Internal Revenue Service data that shows more than $10 billion in wealth has left the state since the estate tax was decoupled from the federal version of the tax, which has a much higher exemption of $5.43 million.

“The people who are able to get out are obviously getting out,” Oroho said, adding that the state loses out on both annual income tax revenue and estate tax revenue when that occurs.

But Michael Mazerov, a senior fellow at the Washington, D.C.-based Center on Budget and Policy Priorities who has studied outmigration trends, said factors other than taxes influence people to leave, including climate and housing costs.

“The bottom line is that cases of wealthy people leaving New Jersey because they think their taxes are too high are rare,” he said.

And data that was included in the report by New Jersey Policy Perspective suggested that for an overwhelming majority of New Jersey residents, the estate and inheritance taxes are a non-issue because they are not rich enough to meet income thresholds. Only one in 10 estates in New Jersey is subject to the taxes, and most of the revenue from the taxes comes from those with estates worth over $1 million, which is almost 10 times the median net worth of New Jersey households, according to the report.

“We want lawmakers to be able to see who actually is being affected and who is paying the bulk of it,” said Jon Whiten, the organization’s deputy director.

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