As New Jersey leaders debate a gas-tax increase and tax cuts designed to offset it, a veteran Democrat wants them to take a new look at legislation that would bring new money into the budget by tightening corporate-tax regulations. While new revenue from the gas tax would be dedicated to the off-budget Transportation Trust Fund, Sen. Ray Lesniak’s proposal would fatten the general fund.
Lesniak’sseeks to add New Jersey to the list of more than two dozen states that have adopted what are known as “combined reporting” corporate-accounting standards. Those standards are designed to prevent large multistate companies from shifting profits to other states that have lower corporate tax rates or no corporate tax at all.
The combined-reporting measure is opposed by business-lobbying groups and has yet to make it out of either house of New Jersey’s Legislature. But it could eventually become a bigger part of the conversation as legislative leaders work to build up bipartisan support for a batch ofthat are currently being paired with the 23-cent gas-tax hike. The changes that Lesniak (D-Union) is seeking could also have strong appeal in future years if the tax cuts are ultimately adopted and begin to take a bite out of the state budget, as many Democrats fear they will.
The combined-reporting bill wasby Lesniak back in February as lawmakers were getting ready to consider a new state budget. At the time, he argued it would be a good way to generate new revenue for a state that hasn’t been fully funding the public-employee pension system or its school-aid law in recent years.
The New Jersey Business & Industry Association lodged its official opposition last month when the bill came up for a vote in the Senate Budget and Appropriations Committee. The group argued the state already has some safeguards in place to prevent taxable income from being exported to other states with corporate tax rates that fall below New Jersey’s standard 9 percent. NJBIA officials also said adopting the combined-reporting standards could open New Jersey up to new costs associated with conducting audits and defending the policy against court challenges.
Still, the measure eventually advanced out of committee, with the majority Democrats all supporting it over Republican opposition.
Now the bill is being looked at in a new context as Senate President Stephen Sweeney (D-Gloucester) and Assembly Speaker Vince Prieto (D-Hudson) are getting ready to advance legislation that would phase out the estate tax and provide tax breaks for seniors, veterans, and low-wage workers while hiking the state’s per-gallon gas tax to 37.5 cents.
The estimated cost of the proposed tax cuts is nearly $900 million, but the legislative leaders say they are necessary to win enough votes from GOP lawmakers to ensure the 23-cent gas-tax hike could survive a veto from Gov. Chris Christie. The Republican governor has never signed off on a major tax hike since taking office in early 2010, and he’s also never had a veto overridden by the full Legislature.
In a statement issued yesterday Christie called the Democrats’ proposal “dead on arrival.” But Christie has also been unable to generate enough support among lawmakers for a sales-tax cut that he wants to enact along with the gas-tax hike, leading to a stalemate that’s lasted throughout the month of July as the TTF has nearly run out of cash.
When his combined-reporting bill was first introduced, Lesniak didn’t have any firm estimates detailing exactly how much money the state could bring in by closing what many believe to be a loophole that gives big corporations an advantage over small businesses. Since then, the nonpartisan Office of Legislative Services has prepared anafter reviewing projections made in other states of changes between 5 percent and 20 percent.
For New Jersey, the OLS analysis noted the state has historically had very volatile corporate-tax collections but also determined that adopting combined-reporting standards here could eventually generate between $110 million and $290 million in new revenue for the annual budget.
Even at the high end of the projection, that wouldn’t be enough money to fully offset the estimated $896 million that the tax cuts included in the latest proposal would cost the budget once fully phased in over several years. But it could help narrow the gap if added to money that’s currently being taken out of the budget’s general fund to help subsidize spending on transportation projects as the TTF has run low on cash.
Because the TTF is heavily indebted there’s no money coming in from the existing 14.5-cent gas tax to pay for new projects. Instead, more than $500 million in sales-tax revenue is being used to keep the TTF solvent.
Hiking the gas tax by 23 cents would bring in over $1 billion in new revenue for the TTF. Lawmakers are hoping to combine those dollars with money raised from new borrowing to extend the life of the trust fund for another 10 years with $2 billion in annual spending on transportation projects. The gas-tax increase would also free up all but $200 million of the sales-tax revenue that’s currently being used to subsidize the TTF for other purposes, like offsetting the impact of any tax cuts.
“I will support the Sweeney-Prieto plan to fund the Transportation Trust Fund, but it should be accompanied by approval of legislation to close corporate-tax loopholes which are costing the state $200 million to $300 million a year,” Lesniak said.
By contrast, the plan featuring the sales-tax cut that Christie favors would take an estimated $1.6 billion out of the budget. That’s raised concerns among members of both parties that the state simply can’t afford to enact that deal, especially since Christie will be out of office when its full effects are felt.
But in his statement yesterday, Christie called on Democrats to come up with a new proposal, saying their current plan “does not represent tax fairness to the residents of New Jersey.”