Sweeney Pushes Tax Hikes On Millionaires, Corporations To Fund Pensions

Mark J. Magyar | June 19, 2014 | Budget, Politics
Unilateral move by Senate leadership highlights split with Assembly Democrats, failure of talks with governor on negotiated budget

Credit: Newsworks
Senate President Stephen Sweeney (D-Gloucester), who staked his political future on a controversial pension reform three years ago, yesterday announced that Senate Democrats would introduce their own budget to fully fund the state’s pension obligation by increasing taxes on the wealthy and on corporations.

“We have a responsibility to have a balanced budget and meet our responsibilities in that budget, and one of those responsibilities is pensions,” Sweeney asserted at a Statehouse press conference with Senate Majority Leader Loretta Weinberg (D-Bergen) at his side.

“The governor talks about the need to have an adult in the room? Well, there is a Plan B,” Sweeney said, taking a swipe at Christie’s insistence that he cannot plug the state’s two-year budget gap without cutting pension payments by $900 million this year and $1.5 billion next year.

Sweeney’s “Plan B” would increase the top income tax bracket for the 2014 tax year from 8.97 percent to 10.25 percent on income between $500,000 and $1 million and 10.75 percent on income over $1 million; imposing a temporary surcharge to raise the corporate income tax rate from 9 percent to 10.35 percent; and cutting $175 million from the much-criticized Business Employment Incentive Program that provides tax subsidies to companies to relocate or stay in New Jersey. The plan also calls for $125 million in anticipated fund lapses and a $69 million increase in projected income tax collections.

The Senate Democratic budget plan would generate the full $1.569 billion needed to completely fund the $2.25 billion pension payment required in Fiscal Year 2015 — the fourth year of a seven-year ramp-up to actuarially mandated funding of the state’s pension obligations under legislation sponsored by Sweeney and signed by Christie in 2010.

Sweeney’s proposal was lauded by public employee union and progressive leaders, but the absence of Assembly Democratic chiefs from yesterday’s hastily called press conference signaled a split in the Democratic legislative ranks that could prevent the Senate Democratic budget plan from ever reaching Gov. Chris Christie’s desk. Christie has already vetoed a millionaire’s tax three times and has threatened to do so again.

Sweeney, who said he offered Christie the option of implementing a millionaire’s tax with a built-in sunset provision, warned that there are “constitutional things we can do” — presumably including placement of a constitutional amendment implementing a millionaire’s tax on the 2015 ballot — if Christie continued to block Sweeney’s legislative options.

More than anything, Sweeney’s decision to unveil his own budget plan demonstrates that the Senate president believes that closed-door talks with Christie administration officials on a negotiated budget will not produce an agreement to increase pension funding enough to prevent the state’s $38 billion unfunded liability from growing and give Sweeney and other Democrats the political cover they need.

In fact, it is increasingly likely that the Senate and Assembly will be voting on the Fiscal Year 2015 budget on June 30, the constitutional deadline for enactment of a balanced spending plan — and Republicans, as well as Democrats, remain divided over what that budget should include.

While public employee union leaders were effusive in their praise for Sweeney’s plan, Assembly Speaker Vincent Prieto (D-Hudson), who previously supported a millionaire’s tax, was noncommittal. “The budget is a work in progress,” Prieto said. “Everything is on the table, as always. We will review the Senate plan.”
“Taxes, taxes, taxes — that’s how we got in this jam,” said Assembly Minority Leader Jon Bramnick (R-Union). The Democrats’ solution will make our state less competitive and less attractive to business. We need to cut spending further and eventually lower the tax burden.”

The need to hold down taxes applies not only to the income and corporate tax increases Sweeney recommended, but also for most of the $237 million in tax increases and fee hikes Christie used to balance his budget, Senate Minority Leader Thomas Kean (R-Union) and Assemblyman Declan O’Scanlon (R-Monmouth) made clear this week.

Both Kean and O’Scanlon are proposing other budget cuts to eliminate the need for Christie’s proposed tax on e-cigarettes and 26 fee increases. Kean also wants to knock out Christie’s plan to make businesses located in 31 Urban Enterprise Zones pay the full 7 percent sales tax.

Senate and Assembly Republicans are already looking at life after Christie — whether he leaves in 2015 to run for the White House or stays through 2017 — which could make it hard for Christie to muster unanimous GOP support, if needed, for what is shaping up to be an unpopular budget.

Senate Budget Committee Chairman Paul Sarlo (D-Bergen) has suggested previously that Democrats might insist that all 16 Republicans in the Senate and all 33 in the Assembly vote for Christie’s spending plan if a negotiated budget is reached — allowing Democrats to simply choose five senators and eight Assembly members who run in noncompetitive districts to provide the majorities needed for passage in both houses.

However, Assembly Republicans, who have to run for reelection in 2015, do not want to vote for a budget that includes tax increases or for a budget that angers public employees by slashing pension payments. And Kean, in particular, owes no loyalty to Christie after the GOP governor tried to oust him as Senate minority leader last November as a favor to Sweeney after Kean tried too hard to elect Republican senators in Sweeney’s South Jersey base, where Christie had a tacit “noncompete agreement” with South Jersey Democratic power broker George Norcross.

The FY15 budget will be adopted in the shadow of a lawsuit filed by 14 public employee unions challenging Christie’s decision to unilaterally cut pension funding in FY14 from $1.6 billion to $696 million by executive order, and to reduce recommended pension funding from $2.25 billion to just $681 million in his revised budget proposal for FY15.

Christie’s contention that he had no other choice after expected state income tax payments from wealthy taxpayers plummeted in April, leaving a combined $2.7 billion hole in the FY14-FY15 budgets, will be the subject of a court hearing before Superior Court Judge Mary C. Jacobson next Wednesday — six days before the June 30 budget deadline.


While even Sweeney conceded yesterday that Christie had little choice but to reduce pension payments to balance the FY14 budget, he said he hoped Jacobson would order the state to make the full FY15 payment.

Sweeney’s Democratic budget plan could clear the Senate Budget Committee as early as Monday, providing Jacobson with a credible alternative-funding plan for the state’s FY15 pension obligation to consider when she hears the case.

Interestingly, however that was not the thrust of the motion that lawyers for the Senate and Assembly filed yesterday, seeking to have the Democratic-controlled Legislature dismissed as a defendant in the union’s pension lawsuit.

Not surprisingly, the Democratic-controlled Legislature argued that it should not be held responsible as a defendant in the unions’ lawsuit challenging Christie’s unilateral decision to use an executive order to cut the FY14 pension payment.

But what was significant was that the Senate and Assembly sided with the Christie administration in arguing that the court did not have the authority to order the executive and legislative branches to increase pension funding in the Fiscal Year 2015 budget once a budget for next year is approved and signed into law.

The state attorney general’s office also filed its brief on behalf of the governor yesterday, asserting that Christie had no choice other than to cut the FY14 pension payment because no previous governor had ever faced “such a staggering shortfall so late in the fiscal year.”

Christie’s lawyers argued that the cuts in state contributions to the pension system in FY14 and FY15 would not imperil pension payments to retirees, despite the massive long-term unfunded liability in the pension funds that pay out retirement checks to one out of every 12 New Jersey residents.

Yesterday, the trustees for one of those funds, the Public Employees Retirement System, voted to join the unions’ lawsuit, after Christie’s appointees to the board recused themselves on conflict-of-interest grounds.

Hetty Rosenstein, state director of the Communications Workers of America, praised both the decision by the PERS Board of Trustees and the Senate budget proposal put forward by Sweeney.

“We applaud Senate President Steve Sweeney for agreeing that the law is the law and that the pension payment must be made,” Rosenstein said. “We are in agreement that everybody has to pay their fair share — including millionaires and corporations.”

Sweeney’s Senate budget plan would raise $565 million by imposing a 10.75 percent tax on income above $1 million and another $155 million by taxing income between $500,000 and $1 million at a 10.25 percent rate. Both brackets represent increases from the current 8.97 percent top bracket that were included in former Democratic Gov. Jon Corzine’s 2009 income-tax surcharge, and both were included in the tax plan offered last week by Sen. Raymond Lesniak (D-Union). Sweeney did not include the increase from 6.37 percent to 8 percent on income between $350,000 and $500,000 or the repeal of the estate tax that were included in Lesniak’s plan.

But Sweeney’s proposal did mirror recommendations by public employee unions and progressive coalitions to increase corporate taxes and cut tax subsidies to corporations, which have received $4 billion in tax abatements since the beginning of the Christie administration.

Sweeney’s surcharge on the corporate business tax, which would go up from 9 percent to 10.35 percent, would raise $375 million, while a one-year suspension of grants from the Business Employment Incentive Program would save another $175 million.

“The current shortfall is the result of four years of wasteful tax breaks for the wealthy and corporations that have helped the fortunate few but left 95 percent of New Jerseyans behind,” said Analilia Mejia, director of New Jersey Working Families, a labor-progressive coalition. ‘We commend the Senate leadership for putting working families first and hearing the call for corporations and the wealthy to pay their fair share.”

Charles Wowkanech, president of the New Jersey State AFL-CIO, said “the Senate President’s plan makes sense — suspend a portion of the $4 billion in corporate welfare Gov. Christie has doled out, and instead make it a priority to fund the pension, keep the state’s promises, and follow the law.”

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