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Proposal to Hike Gas Tax and Lower ‘Death Taxes’ May Be Unveiled by Lawmakers Soon

Advocates for working families cry foul, arguing deal would mostly benefit wealthier Garden State residents while hurting those with lower incomes

Analilia Mejia
Analilia Mejia, executive director of New Jersey Working Families, and other opponents of a proposal to link an increase in New Jersey's gas tax with a reduction of the estate and inheritance taxes speak during a news conference held at the State House in Trenton.

New Jersey motorists would pay higher gas taxes next year under a proposal that’s expected at any time from lawmakers who are desperately looking to generate more money for transportation improvements.

To soften the blow of that unpopular increase – most recent public opinion polls show voters oppose the idea of another gas-tax hike – many lawmakers have also openly discussed reducing or even repealing another state tax, with the estate and inheritance taxes most frequently in those conversations.

Legislative leaders from both parties seem to be in agreement on at least the framework of such a tradeoff, even though details have yet to be proposed, and a tradeoff of some sort also hasn’t been dismissed by Gov. Chris Christie, who has called for more “tax fairnesss” in New Jersey as he seeks the GOP’s 2016 presidential nomination.

But the idea of exchanging a gas-tax hike for reductions to the estate and inheritance taxes – which are commonly referred to as the “death taxes” -- remains largely unpopular with liberal groups and advocates for working families who point to what they see as an inherent unfairness.

That’s because an increase of the gas tax will consume a bigger percentage of a low-wage worker’s income compared to those who make a lot of money, and the wealthy stand to gain the most from lowering ing the estate and inheritance taxes.

“The idea that somehow this tradeoff is fair, is tax fairness . . . is in our eyes preposterous,” said Analilia Mejia, executive director of New Jersey Working Families, during a news conference held in the State House yesterday. Mejia’s organization is one of several participating in a campaign advocating for state fiscal policies that make more sense for New Jersey’s lower- and middle-class families.

“To us, this concept basically boils down to the premise of a future tax cut when you die that most New Jerseyans will never actually see,” she said.

Right now, New Jersey’s gas tax totals 14.5 cents for every gallon purchased, which includes a 10.5-cent tax on retail gasoline sales and an additional 4.5-cent tax on gross receipts levied on refineries and distributors that is passed along to motorists. The gas tax helps generate revenue for the state’s Transportation Trust Fund, which spends more than $1.5 billion annually on road, bridge and rail projects throughout the state, not counting federal matching dollars.

Transportation fund dwindles

Democratic legislative leaders this year have made transportation funding a top priority because by the middle of next year all of the revenue raised by the gas tax at its current level will be needed to help pay down the trust fund’s significant debt.

Other proponents of an increase point out that the gas tax hasn’t been increased since 1988, and is the second-lowest among U.S. states, behind only Alaska.

New Jersey, meanwhile, is one of only two states in the country that levy a tax on both estates and inheritances. Together, the “death taxes” bring in roughly $755 million for the state budget each year, with the breakdown about even between the two. (As the names imply, the estate tax is charged against an estate after someone in New Jersey dies if it’s worth more than $675,000, while the inheritance tax is levied on an inheritance that’s bequeathed to someone who is not a direct relative or charity).

Moving to avoid ‘death taxes’?

At $675,000, New Jersey’s estate-tax threshold is the|lowest in the country] and far below the federal floor, which is set at $5.43 million this year. Lawmakers from both parties have also argued that since homes are generally subject to the estate tax, many that are passed on, particularly in North Jersey, bring estates to the $675,000 threshold, or close to it, even before other assets are factored in.

Business leaders have also been making a case for reducing or repealing the estate and inheritance taxes, saying they hurt small-business owners who often leave their businesses to a relative. They also argue that the taxes push wealthy residents to retire to other states with less punitive tax policies.

Nearly 70 percent of business owners surveyed recently by the New Jersey Business & Industry Association said they plan to retire elsewhere, taking their wealth and charitable contributions with them.

“We are finding that the outmigration of businesses and residents continues to the point where our members express serious doubts about whether they will retire here and would expand their businesses here,” said Michele Siekerka, NJBIA’s president and chief executive officer. “A wide majority also say that they take the estate and inheritance taxes into account when making decisions about their business,” she said.

From a political perspective, a deal involving the gas tax and the death taxes makes sense because it brings together the Democrats’ goal of maintaining infrastructure spending with the Republicans’ goal of tax reform. But to those who oppose trading off revenue from a gas-tax hike for a death-tax reduction the connection makes no sense at all.

Refute claim about home prices

New Jersey Policy Perspective, a liberal think tank based in Trenton, link:|released a policy brief] yesterday that indicated the average home price in New Jersey is $355,685, far below the $675,000 estate-tax threshold, leaving plenty of room for those in the middle class for other assets.

And data collected earlier this year by the nonpartisan New Jersey Office of Legislative Services indicated roughly 11 percent of deaths in New Jersey triggered either the estate or inheritance tax. On the other hand, an increase in the gas tax – which might need to go up by as much as 25 cents per gallon – would impact people in all income brackets, with no discount for low-wage earners.

Boosting the estate-tax threshold from $675,000 to $1 million would also take roughly $30 million from the state budget, about twice the size of the budget hole that New Jersey Transit was facing earlier this year when it was forced to raise fares.

“You can’t fund transportation by robbing Peter to pay Paul,” said Doug O’Malley, director of Environment New Jersey, one of the groups involved in the Better Choices for New Jersey campaign. “That’s what this deal would mean.”

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