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Democratic Leaders Unite On New Tax-Cut Plan to Balance Gas-Tax Hike

Sweeney and Prieto hope to appeal to legislators from both parties — and maybe even Gov. Christie — or to pick up enough support for an override

sweeney-prieto
Senate President Stephen Sweeney (D-Gloucester) and Assembly Speaker Vince Prieto (D-Hudson)

A new agreement to renew state transportation funding has reunited the Legislature’s top two Democrats in a push either to win support from Gov. Chris Christie for a plan featuring a 23-cent gas-tax hike or to secure enough backing from members of the governor’s own Republican Party to override him.

The new deal struck between Senate President Stephen Sweeney (D-Gloucester) and Assembly Speaker Vince Prieto (D-Hudson) would also effectively deny Christie the broad-based tax cut he’s been pushing for a while, keeping the potential loss of revenue out of the annual budget from tax cuts that many believe are necessary to ease the impact of the gas-tax hike to less than $1 billion.

The task now before the two legislative leaders is to convince Christie he has little choice but to agree to the gas-tax hike that’s at the heart of the plan, or to guarantee what would be the first successful override by lawmakers of a Christie veto since the governor took office in 2010.

To do so, the agreement struck between Sweeney and Prieto makes several key changes to legislation first introduced last month, including adding a new income-tax break that would be offered to veterans. It also calls for a planned phase out of New Jersey’s estate tax that was already in the bill to be accelerated, which should appeal to Republican lawmakers who have targeted the elimination of that tax for years. Though subtle, all of the changes in the new bill should make it more likely to win an override if Christie ultimately decides the tax cuts aren’t impressive enough to counterbalance what would be his first endorsement of a major tax hike since taking office.

“I think we’ve done a great job,” Sweeney said during a conference call held with reporters Friday afternoon after the new deal on the legislation was announced.

Still, the changes weren’t embraced by a spokesman for Christie and other critics of the bill on Friday, setting the stage for another high-stakes power struggle in the State House once this week’s Democratic National Convention comes to a close.

The newest version of the legislation backed by Sweeney and Prieto is based on a bipartisan bill that was originally proposed to renew the Transportation Trust Fund at the beginning of June. Pairing the gas-tax increase sought by Democrats with tax cuts like the phase out of the estate tax that are favored by Republicans seemed to put that measure on track for widespread bipartisan support.

But the legislation was upstaged at the end of June when Christie made a last-minute call to pair the gas-tax increase with a proposed one percentage point reduction in the sales tax. The Assembly, under Prieto’s guidance, approved the sales-tax option in a late-night voting session that was held just days before the TTF’s last five-year finance plan was set to expire.

But after scoring that victory, Christie could never find enough support for the sales-tax option in the Senate. Sweeney led the opposition, citing concerns about a huge, $1.6 billion hole that a sales-tax cut would eventually blow in the state budget. Sweeney also remained dug in even after Christie ordered a shutdown of state-funded road, bridge, and rail projects earlier this month to preserve funding for essential work and emergencies. Direct talks between the two men over the past two weeks also failed to bring a compromise.

Prieto, in a statement Friday, said ditching the sales-tax option and striking a new deal with Sweeney ensures the stalemate over transportation funding will get resolved.

“I’m pleased to reach this new compromise that will provide much-needed investment in our state’s infrastructure and tax relief,” Prieto said.

The specific changes made by the two leaders to the original bill should help address concerns that many Republicans had about the proposed tax cuts not being significant enough to offset a gas-tax hike that is estimated to increase costs for the average New Jersey motorist by $150 annually once its enacted.

In the place of a proposed state income-tax deduction for charitable contributions, the new bill features a $3,000 income-tax break for honorably discharged veterans. That addition should have a lot of appeal to GOP lawmakers who represent districts that surround Joint Base-McGuire-Dix-Lakehurst in South Jersey. There is also a new income-tax break worth up to $500 annually for gas taxes paid by households making $100,000 or less.

To further entice Republicans, the phase out of New Jersey’s estate tax — a key cut sought by GOP lawmakers and business-lobbying groups — would be completed by January 1, 2020. Also remaining in the bill is a proposed tax break for those living off pensions, 401(k) plans and other sources of retirement income, as well as a boosting of the Earned Income Tax Credit for the working poor.

Just as the changes look to bring out more GOP support for the bill, getting rid of the proposed jet-fuel tax hike that was in the original legislation should shore up support among nearly every Democratic lawmaker. That’s because some who represent districts with airports, including legislators in Essex and Mercer counties, showed some reluctance to sign off on the original version when it included what would have been a more than 10-cent increase in the tax.

Now, along with the 23-cent gas-tax hike, the new legislation includes a 4-cent surcharge on diesel fuel and a proposed 7 percent increase on nonmotor fuels to help bring in an estimated $1.2 billion in annual revenue. That money would be used along with funds raised from new borrowing to pay for $2 billion in annual spending on transportation projects over the next 10 years.

The final price tag for the new legislation is an estimated $896 million once the tax cuts are fully phased in over several years, is about half the total of Christie’s preferred option, which also included the retirement-income changes along with the proposed sales-tax cut.

All of the new revenue would be dedicated to funding transportation improvements under a proposed constitutional amendment championed by Prieto that will go before voters this fall. And the two leaders stressed that part of the gas-tax increase would also be picked up by out-of-state motorists.

The first vote on the amended legislation is now scheduled to be held this Friday in the Senate Budget and Appropriations Committee, and it could go before the full Senate the following Monday.

Christie’s press secretary, Brian Murray, said the governor had yet to receive all of the details about the new bill from the legislative leaders. Murray said Christie would be checking to see if the new tax cuts are significant enough to win his support.

“Only then can he determine if their plan to fund the TTF with an increased gas tax offers tax fairness to the people of New Jersey in the form of significant broad-based tax relief,” Murray said.

Sen. Jennifer Beck (R-Monmouth), an outspoken opponent of any gas-tax hike, downplayed the significance of the bill’s new elements after they were made public on Friday, calling them just “cosmetic changes.”

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