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Tuning and Tweaking Legislation Targeting the Transportation Trust Fund

A few subtle changes in the original bipartisan plan would put a cap on how much the gas tax could increase and give retirees a more generous break on their taxable income

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New Jersey’s per-gallon gas tax could eventually increase to more than 50 cents but would be capped from going much higher. That’s thanks to a subtle change that’s been made to the original bipartisan plan to replenish funding for state transportation projects while also enacting a series of offsetting tax cuts.

The tweaking of the proposed gas-tax hike is one of several small but significant adjustments that were revealed in detail yesterday as two newly introduced pieces of legislation tied to the broader bipartisan plan were released by staff in the State House.

The state Transportation Trust Fund would be renewed for another 10 years with $2 billion in annual spending under one of the bills. The other measure hikes the gas tax and enacts the proposed tax cuts, including a reworked lifting of state income-tax exemptions for retirees living off pensions, annuities, and 401(k) plans. And there’s now “poison pill” language in the package to make sure both initiatives will be followed through on.

A number of groups that have been pressing for a solution to a looming state transportation-funding crunch -- the trust fund’s current finance plan runs out on June 30 -- praised the progress lawmakers have made on the issue yesterday. But others are ramping up their efforts to block the bipartisan deal, including a group of small-business owners who plan to hold a conference call for reporters this morning to explain why they oppose the two bills.

In all, the two measures cover more than 100 pages, with identical versions introduced in both the Assembly and the Senate on Monday. That action followed a week and a half of negotiations between leaders in the two houses after a detailed plan for extending the Transportation Trust Fund with a gas-tax hike while also making tax cuts was put forward by Sens. Paul Sarlo (D-Bergen) and Steve Oroho (R-Sussex) on June 10.

The most notable change to the senators’ original plan that was revealed in the legislation released yesterday is a now heavier reliance on taxing gas at the wholesale level using a percentage tax levy instead of a simple per-gallon rate.

Already taxed at 4 cents per-gallon at the wholesale level, the original Sarlo-Oroho proposal included a proposed 10-cent per-gallon wholesale tax increase and an additional 7 percent surcharge on top of that. But now the final version settles on applying a 12.5 percent tax increase at the wholesale level on top of the existing 4-cent per-gallon wholesale tax. A 10.5-cent tax on gasoline sold at the pump will also remain in place. If enacted, the increased percentage tax levied at the wholesale level is likely to be passed along to motorists. That would deliver the same 23-cent per-gallon gas-tax hike that was floated in the original Sarlo-Oroho proposal, putting the total per-gallon gasoline tax at 37.5 cents using current gasoline prices.

But applying a larger percentage wholesale tax means if gas prices go up in the future the state gas-tax would also go up a little more as a result. However, the legislation would also put a cap on the new wholesale tax, meaning it could rise to 52 cents but go no higher even if gas prices continue to go up. This feature will also keep New Jersey’s gas tax lower than New York’s and Pennsylvania’s because those states’ gas taxes are also influenced by prices, but without the cap.

The final bill package introduced this week also scraps a $150 annual registration fee for electric car owners that had been proposed by lawmakers earlier in the month, though it could eventually be revived by a special panel that would be put in place to review the tax changes once enacted. Proposed tax hikes on jet fuel and diesel also remain in the bill package. And it formally calls for the trust fund’s debt ceiling to be increased by $15 billion to fund road, bridge, and rail-network improvements throughout the state over the 10-year period.

Meanwhile, the biggest change on the tax-cut side of the broader plan would make a proposed state income-tax exemption more generous for retirees living off pensions, annuities, and 401(k) plans.

Current state law allows taxpayers who are at least 62 years old to exempt from state income taxes up to $15,000 in retirement income as an individual, and up to $20,000 as a married couple. There is an income ceiling of $100,000 to qualify for those exemptions.

But the bill package calls for the amount that can be excluded from state income taxes to increase to $75,000 for individuals and the full $100,000 for couples over a five-year phase-in period. The phase-in period in the original Sarlo-Oroho proposal was four years.

The bill also creates a new 50 percent credit for retirees making up to a $125,000 annual income ceiling, and a similar 25 percent credit for those making up to a $150,000 annual income ceiling. The bill also leaves out an income-tax credit for gasoline taxes for those who drive a lot that was included in the original proposal. But a proposed increase of the Earned Income Tax Credit and a phaseout of the estate tax remain in the legislation, along with a new income tax deduction for contributions made to social-service charitable organizations.

Once fully phased in, the tax cuts are expected to be worth an estimated $870 million, not quite offsetting the more than $1 billion that’s projected to be generated by the proposed fuel-tax increases.

The overall bill package won praise yesterday from a number of groups, including the New Jersey Chamber of Commerce, which has been calling on lawmakers for months to come up with a way to renew the trust fund before it runs out of cash.

“The revenue raised by the TTF bill will be invested in repair and maintenance of our roads, bridges, and tunnels, which is a critical investment for New Jersey's future,” said Tom Bracken, the chamber’s president.

“The proposed tax reforms will help make New Jersey more competitive and more attractive for new investment and new businesses,” he said. “Both of these legislative proposals will create real growth and real opportunity for everyone in New Jersey, and are critical for our state's future.”

Robert Briant, chief executive of the Utility and Transportation Contractors Association, called the introduction of the legislation “an amazing step forward for the people of New Jersey.”

“The UTCA fully supports this legislation and will be working hard to ensure legislators are educated on its importance to the state’s residents and supportive of the bill,” he said.

But several members of the New Jersey Main Street Alliance are planning to hold a conference call with reporters this morning to explain their concerns about the two-bill package, namely how the tax cuts could take much-needed revenue out of the state budget.

“It jeopardizes critical funding for education, healthcare, public safety, and other public services that make New Jersey a great state for small businesses to thrive in,” said Jerome Montes, the organization’s business representative.

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