On four separate occasions, legislative leaders have sent Gov. Chris Christie a bill seeking to institute a so-called millionaire’s tax in New Jersey — and each time it’s been rejected.
But as the state’s fiscal condition continues to deteriorate and as polls show Christie’s popularity is sagging, voters are seeing merit in such a policy change, meaning the millionaire’s tax could get a longer look this year.
Senate President Stephen Sweeney (D-Gloucester) introduced the latest millionaire’s-tax bill yesterday, saying it would temporarily increase the income-tax rate paid on earnings over $1 million from 8.97 percent to 10.75 percent.
The bill’s introduction sets up a familiar conflict in the State House, with Democrats saying the state’s 17,000 millionaires can afford to take the extra hit, while Republicans and business-lobbying groups argue it will hurt small businesses and drive the state’s wealthiest residents to lower-tax states.
There is also a political wrinkle, with Christie considering a run for the GOP nomination for president in 2016, and Sweeney eyeing a possible run for governor himself in a few years.
Sweeney said the goal of the millionaire’s-tax bill is to help the state live up to its financial obligations in a New Jersey economy that has been recovering at a slow pace after the last recession despite Christie’s attempts to revive it with business-tax cuts and generous corporate incentives.
The measure would seek to generate $675 million in the first year, and then “sunset” after four years. The bill would also return the state’s Earned Income Tax Credit, which benefits low-wage workers, back to 25 percent of the federal credit, reversing a cut to 20 percent that Christie enacted in 2010. That would cost the state roughly $60 million, leaving a net gain of $615 million.
“No one likes to increase any tax,” Sweeney said. But he also stressed that “not one dime of this tax increase will come out of the pockets of middle-income taxpayers.
But it would also punish many small-business owners, said Andrew Musick, director of policy and research at the New Jersey Business and Industry Association. Many small businesses are incorporated in a way that sees them pay business taxes through their personal income-tax returns.
“We really feel that it’s an income-tax increase on small businesses,” Musick said.
And Senate Minority Leader Tom Kean Jr. (R-Union) said it would add to New Jersey’s already “burdensome” tax structure.
“What we’re talking about here is a massive income-tax increase,” Kean Jr. said. “We’re competing against other states that have lowered their income-tax rates.”
During a news conference last week when he announced he would be introducing the millionaire’s tax bill, Sweeney said Christie’s failed economic policies have put pressure on lawmakers to deal with the state’s financial trouble, including a crushing unfunded liability in the public-employee pension system and several credit-rating downgrades that have the potential to increase state borrowing costs that are ultimately carried by taxpayers.
But even amid those challenges Christie has held firm since taking office in early 2010 to a pledge to not raise any of the state’s major taxes. And he has yet to agree with Sweeney and other Democratic lawmakers on a deal that would increase the state’s gasoline tax to help shore up the Transportation Trust Fund, which relies on revenue from gas taxes and tolls to help pay for more than $3 billion (counting federal matching funds) in annual road, bridge and rail improvements.
The state has cobbled together enough money to sustain transportation spending for one more fiscal year, but it will only have enough revenue to pay off existing debt as of June 30 of next year.
While Sweeney has criticized Christie, portraying himself as stepping up to the plate and showing leadership, the governor fired back during a news conference last week that came a day after Sweeney’s.
“Democrats are once again firmly in the place of raising taxes on people in New Jersey,” Christie said. He added it’s “the only prescription that Democrats ever have for any problem in the state.”
Christie’s press secretary Kevin Roberts yesterday referred back to those comments when asked for a comment on Sweeney’s bill.
But there are indications that a majority of New Jersey voters now seem to be siding with Sweeney’s approach to the budget issues, while Christie himself – who easily won re-election in 2013 – is starting to lose the support of those voters.
A Monmouth University Poll released earlier this week found only 35 percent of New Jersey voters surveyed approved of Christie’s job performance. For the Monmouth poll – which has won high marks for its accuracy – that marks Christie’s all-time lowest net job approval.
Another poll released late last month by Quinnipiac University found that most voters here would prefer spending cuts to raising taxes in order to balance the budget.
But the same poll found that support for a gas-tax increase to fund mass transportation and road improvements has risen to 50 percent, up from the 37 percent in January.
And when asked specifically if they would support increasing taxes on those earning over $1 million to bring in funds needed to help shore up the pension system, 64 percent of the voters surveyed said they would support such a measure.
“All the talk of fiscal doom seems to have sunk in,” said Maurice Carroll, assistant director of the Quinnipiac poll.
Sweeney’s bill doesn’t directly tie the money that would be generated off the proposed millionaire’s tax to the pension system’s debt, which is between $40 billion and $80 billion depending on which accounting system is used. But he has said the additional revenue would help the state meet its obligation to retirees, something Christie and prior governors have consistently put off.
[related]The impact of that underfunding is at the root of a case currently before the New Jersey Supreme Court, with public-worker unions asking the justices to require the state to live up to a contractual pension-funding promise that Christie and legislators agreed to in a 2011 pension-reform law.
On Wednesday, the court listened to oral arguments from the Christie administration and lawyers for more than a dozen public-worker unions.
Under the reforms, the state had agreed to make a $2.25 billion pension contribution during the current fiscal year, and a $3.1 billion payment during the fiscal year that begins July 1. But Christie is instead planning to make a contribution of just $881 million before June 30, when the current fiscal ends, saying the state can’t afford to pay any more.
And he has proposed a $1.3 billion pension payment for the next fiscal year, along with a series of new pension reforms, including freezing the current pension system and moving employees into a new retirement plan with features of a 401(k).
A lower court judge ruled in favor of the unions back in February, but Christie appealed, which set the stage for Wednesday’s arguments before the Supreme Court. A ruling in the case could come at any time.
“The new revenue will help the state meet its financial obligations and restore the fiscal stability that is needed to get the economy moving,” Sweeney said yesterday.