Prieto Wins Argument On Limiting State Income-Tax Hike To Millionaires

Mark J. Magyar | June 24, 2014 | Budget, Politics
Democratic budget kills tax increases on e-cigarettes, Urban Enterprise Zone businesses

Assembly Speaker Vincent Prieto (D-Hudson)
In a decision that is likely to shape Democratic tax policy for the next year, Assembly Speaker Vincent Prieto (D-Hudson) and Assembly Democratic leaders persuaded Senate President Stephen Sweeney (D-President) and their Senate Democratic counterparts to limit their proposed increase in the state income tax to millionaires.

The Democrats’ proposed increase in the top tax bracket from 8.97 percent to 10.75 percent on income over $1 million will undoubtedly be quickly erased from the budget bill by Gov. Chris Christie, but it is likely to reappear on the November 2015 ballot as a constitutional amendment.

While Sweeney last week proposed a 10.25 percent tax on income between $500,000 and $1 million to go along with the 10.75 percent millionaire’s tax, Prieto made it clear that the Assembly preferred a “pure millionaire’s tax” that would hit only some 16,000 wealthy taxpayers.

In a comment that echoed Republican campaign rhetoric, Prieto said he worried that a “half-millionaire’s tax,” which would be levied on about 47,000 taxpayers, would hurt “the small businesses that are the job creators,” referring to the tens of thousands of small business owners who pay their business taxes as S corporation revenue on their personal income tax.

Prieto is unlikely to change his mind when he and Sweeney sit down after the budget to discuss the Senate and Assembly votes that will be needed in consecutive years to put a millionaire’s tax on the November 2015 ballot.

And with Prieto’s 48-32 Assembly majority up for election in 2015 — but Sweeney’s Senate not running again until 2017 — Prieto has good reason to insist that the constitutional amendment be limited to income over $1 million.

Democratic concern over voting even for a true millionaire’s tax is reflected in the fact that the revised budget bill will most likely pass with the minimum 21-vote majority in the Senate and 41 in the Assembly. Democratic insiders said legislators in vulnerable districts, such as Bergen’s 38th District and the 1st and 2nd Districts in Cape May, Cumberland and Atlantic counties, would be “given a pass” on voting for the budget.

Sweeney’s willingness to accept a strict millionaire’s tax for the budget bill — and most likely for the constitutional amendment that will follow — reflects the fact that raising the 8.97 percent top rate to 10.75 percent on income over $1 million would raise $565 million, compared to just $155 million by imposing a new half-millionaire’s bracket of 10.25 percent.

Much of the millionaire’s tax would be paid by the super-rich. As Gordon MacInnes, president of New Jersey Policy Perspective, noted recently, the top 50 income-tax filers in New Jersey earned an average of $128 million. Those 50 taxpayers would pay more than $113.9 million — or one-fifth of the proposed $565 million millionaire’s tax increase.

The remainder of the Democratic budget bill, which is expected to be introduced and passed by the Assembly and Senate budget committees today, closely resembles the plan that Sweeney and Senate Majority Leader Loretta Weinberg (D-Bergen) put forward last Wednesday – to the chagrin of Prieto, Assembly Democratic leaders, and Senate Democrats, who first learned about Sweeney’s announcement when reporters started calling them.

Like Sweeney’s plan, the Democratic budget compromise reportedly restores the full $2.25 billion pension payment in the fiscal year 2015 budget, putting the state back on track to reach full actuarially required funding for the state pension system, which currently has a $38 billion unfunded liability, by FY18, as required by a law Christie signed in 2010.

Christie’s decision to cut the state’s pension payments to just $696 million in FY14 and $681 million in FY15 is the subject of a public employee union lawsuit that is being heard by Superior Court Judge Mary C. Jacobson tomorrow.

The Democratic budget bill includes Sweeney’s proposals to raise the corporate income tax from 9 percent to 10.35 percent for businesses earning more than $100,000 in profit and to suspend the $175 million Business Employment Incentive Program that provides tax abatements to businesses that relocate or agree to stay in New Jersey.

While Christie can use his line-item veto power to cut the millionaire’s tax increase and the $375 million hike in the corporate income tax, he does not have the power to restore the cut in the Business Employment Incentive Program.

However, once Christie executes his line-item vetoes, including reducing the pension payment from the $2.24 billion included in the Democratic budget to the preferred payment of $681 million, the governor could add the $175 million cut from the BEIP program to the state’s relatively small $300 million surplus, and try to negotiate its restoration with Democratic legislative leaders later in the year.

The BEIP program was revised as part of a bipartisan overhaul of the state’s controversial business tax incentive program. Liberal Democrats have criticized Christie for awarding $4 billion in tax incentives to corporations in his first four-and-a-half years in office, but Democratic leaders like Sen. Raymond Lesniak (D-Union) still believe in the need for the program.

“We’ve made important improvements to the program, and cutting it would be a mistake,” Lesniak said in an interview last week.

The Democratic budget plan also will prevent Christie from imposing a tax on e-cigarettes and from requiring businesses in the state’s Urban Enterprise Zones to pay the regular 7 percent sales tax on purchases, as Christie’s original budget proposed. Both taxes are being eliminated in the Democratic budget.

Senate Minority Leader Tom Kean (R-Union) had opposed both taxes, which Christie will not be able to add back into the budget.

The Democratic budget, however, will include Christie’s proposals to raise additional revenue by requiring online retailers based in New Jersey to collect sales tax, as Amazon already does under an agreement reached with Christie administration officials a year ago. It also imposes the same penalties for fraudulent electronic payments as for bad checks

“Democrats in the Legislature are united behind this budget, and we are committed to restoring credibility to state finances,” Senate Budget Committee Chairman Paul Sarlo (D-Bergen) said yesterday.

“While we can’t afford to do everything we would want with the state budget, we also can’t afford to walk away from those in need. School funding, cancer research, law enforcement, legal services, tax credits for the working poor, domestic violence services, and family planning are among a wide array of important services and programs that are needed even more during these times of continued economic distress,” Sarlo said.

Assembly Republican leaders renewed their criticism of the proposed income tax increase on millionaires, arguing that the higher rates proposed by Democrats would push wealthy individuals to leave the state.

Assembly Minority Leader Jon Bramnick (R-Union) asserted that Democrats should support the GOP’s call for a constitutional amendment to allow the governor and the Legislature to override the state Supreme Court’s Abbott v. Burke decisions requiring millions of dollars in state aid to urban school districts.

Tom Hester, the Assembly Democratic spokesman, dismissed the Republican proposal. “The Republicans made clear today why they continue to be the minority party — they’re bereft of ideas, favor the wealthy over the middle class and offer nothing more than knee-jerk criticisms instead of honest discussion,” Hester said.

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