Last month’s court ruling calling on Gov. Chris Christie and lawmakers to come up with another $1.6 billion in funding for the public-employee pension system before the current fiscal year ends has renewed debate about whether millionaires in New Jersey should be asked to pay more to keep the state budget balanced.
Though boosting the income tax rate on earnings over $1 million wouldn’t raise the full $1.6 billion, Senate President Stephen Sweeney (D-Gloucester) said it would help the state make “a good-faith effort” while giving public-worker unions an incentive to cooperate with government to make benefits more affordable.
“In my mind that means a millionaires tax, it really does,” Sweeney said in an interview with NJ Spotlight.
Though a bill hasn’t been crafted yet, he envisions something similar to the legislation lawmakers sent Christie last year that would have temporarily upped the income-tax rate on earnings over $1 million from 8.97 percent to 10.75 percent.
That bill came after Christie, a Republican, cut the state pension payment by a combined $2.45 billion over two fiscal years in the wake of significant budget problems last year, including a $1 billion revenue shortfall. Christie, as he has several times, immediately vetoed the millionaire’s tax bill and cut the pension contribution, saying it would be bad for the state’s economy and hurt small business. The unions sued in response, setting the stage for the February 23 court ruling.
Assembly Speaker Vince Prieto (D-Hudson) said though income tax revenue is generally dedicated in New Jersey’s budget to property-tax relief, he’s again open this year to hiking the rate paid on income over $1 million given the pension ruling and other significant fiscal pressures.
“We have a revenue problem in the state of New Jersey,” Prieto said in an interview. “I think the millionaire’s tax is something that we definitely should have in play.”
Christie, however, took issue with that approach during a town hall-style event in Fair Lawn last week, saying New Jersey still has in place a tax hike instituted in 2004 by former Gov. Jim McGreevey, who billed that increase on earnings over $500,000 as a millionaire’s tax at the time.
But Christie was wrong when he said New Jersey’s top-end tax rate under that McGreevey policy change begins on earnings over $400,000.
“We have Governor McGreevey to thank for this,” Christie told the town-hall audience. “The millionaire’s tax starts on people who make $400,000 a year. Take that in for a minute.”
“Even as you make $400,000 we’ll tax you like a millionaire,” Christie said.
Christie’s error was repeated in a clip from the town hall that was posted by his communications staff on YouTube.
Sweeney, in a later interview, said it was unfortunate Christie got the facts wrong during the event.
Not only did he mistake $400,000 for $500,000, Sweeney said Christie also didn’t make it clear that the proposed rate of 10.75 percent, as in prior millionaire’s tax bill, would apply only to those dollars earned over $1 million, not the entire $1 million or more in earnings.
“I think the governor clearly knows he’s not correct in those statements,” Sweeney said. “When you want to get a certain reaction you say certain things.”
Christie also said during the event in Fair Lawn that New Jersey has a “9 percent top income-tax rate, the third-highest one in America.”
But according to the Tax Foundation, a Washington, D.C.-based organization that tracks state tax policies, New Jersey’s 8.97 percent top-end income tax rate is the sixth-highest in the country, behind California, 13.3 percent; Hawaii, 11 percent; Oregon, 9.9 percent; Minnesota, 9.85 percent; and Iowa, 8.98 percent.
Kevin Roberts, a spokesman for Christie, did not respond to repeated requests for comment Friday on Christie’s statements at the town hall.
Christie also predicted such a tax-policy change “will raise, on its best day, $500 million. On its very best day it will raise $500 million.”
Yet the New Jersey Office of Legislative Services, the nonpartisan research wing of the state Legislature, said last year when it analyzed Sweeney’s proposal that boosting the top-end rate on earnings over $1 million would generate an estimated $580 million to $615 million in the first year.
Another concern Christie raised last week was that increasing the tax rate on millionaires could send more of them packing to states that already offer lower income tax rates, or levy no income tax at all.
That’s because the top 1 percent of tax filers typically cover roughly 40 percent of the total income tax haul for New Jersey, according to Department of Treasury figures, and Republicans here also frequently point to a study of charitable giving that estimated $70 billion in wealth left the state over a five-year period between 2004 and 2008, the immediate years after McGreevey increased the top-end tax rate for those making more than $500,000.
“So now what’s going to happen is, we’re so dependent in terms of our revenue in this state on those very wealthy people, the more of them that leave, it has a disproportionate effect on our revenue because we depend on them more,” Christie said.
Yet most voters don’t seem to share that concern as income inequality — the gap between the rich and the poor — continues to grow. A survey conducted last year by Monmouth University’s Polling Institute found 66 percent believe it’s a good idea to use revenue raised by charging higher taxes on those earning more than $1 million to make larger pension contributions.
And for Sweeney, the issue really comes down to what Christie has done to grow New Jersey’s economy. Since taking office in early 2010, Christie’s economic policies have included a series of phased-in business-tax cuts, efforts to reduce regulation, and a revamping of state corporate tax-incentive programs.
But Christie, in his $33.8 billion proposed spending plan for the fiscal year that begins July 1, said the state can only afford a $1.3 billion pension contribution, not the $3 billion the state previously committed to paying. Spending on transportation projections will also be scaled back from $1.2 billion to $600 million. Transportation investment has become a major business issue, since the business community believes it is essential in order to grow the economy.
Citing data from a Pew Charitable Trusts study of how states have recovered economically after the past recession, Sweeney said if New Jersey had experienced just the average recovery enjoyed by other states it would have $3 billion more in revenue to spend on items like the pension system, transportation or other priorities.
“We could avoid a millionaire’s tax if he did something in the five years he’s been here to fix the economy,” Sweeney said. “Then you wouldn’t be talking about a millionaire’s tax. You wouldn’t be talking about any of that stuff.”