Lesniak Touts Legislation As Way to Add Money to Budget Without Raising Taxes

By closing loopholes that let multinational companies shift profits to other countries, Democratic lawmaker says he can find at least $250M for strapped state

State Sen. Raymond Lesniak
Democrats who control the Legislature have not shied away from talk of raising taxes this year to bring in more money for the public-employee pension system. And the budget bill they’re expected to put forward today for the next fiscal year will likely rely on increased revenue from a millionaire’s tax and possibly even a surcharge on corporate earnings.

But a veteran Democratic lawmaker said he is planning to introduce a bill today that would also raise revenue — without increasing any taxes.

Sen. Ray Lesniak (D-Union) said closing a loophole in New Jersey’s corporate-tax policy that now allows multistate corporations to shift some profits to lower-tax states will bring in more cash — he’s guessing $250 million more — while at the same time leveling the playing field for in-state small businesses.

And though Gov. Chris Christie, a Republican exploring a run for president in 2016, is not expected to agree to increase any taxes for the fiscal year that starts July 1, Lesniak said his bill is one the governor can sign off on.

“This is not a tax increase,” Lesniak told NJ Spotlight in an interview. “Without a doubt it’s not a tax increase.”

A study released earlier this month by the liberal think tank New Jersey Policy Perspective estimated the switch to a corporate-tax system known as “combined reporting” would generate between $235 million and $470 million more in revenue for the state budget.

Right now, more than half of the 45 states that have some form of a corporate tax already require combined reporting. Opponents of the policy have said estimates of increased revenue are questionable and that it can distort income gains and losses. But proponents have billed combined reporting as a fairness measure because it puts large corporations that have the ability to shift profits to other states on the same footing as small businesses that generally cannot.

“I’m surprised that no one had brought this to our attention sooner,” Lesniak said.

The introduction of Lesniak’s combined-reporting bill comes at a crucial time in the state-budget process, with a little over a week left before a July 1 deadline for a balanced budget that’s mandated by the state constitution. Democrats are unhappy with the $1.3 billion state pension payment that Christie included in the $33.8 billion proposed budget he put forward back in February.

[related]They’re planning to introduce their own budget bill and have said for weeks that it will include a $3.1 billion state-pension contribution, using a payment schedule Christie committed the state to following a 2011 pension-funding bill. But Christie has since gone back on that promise despite having held up the reform effort as a national model.

A ruling from the state Supreme Court earlier this month determined that the Christie administration doesn’t have to abide by the payment schedule laid out in the 2011 law. But with employees also contributing more toward their pensions as a result of the reforms, Democrats have said it’s important that the state still follow the payment schedule to ensure the fiscal stability of a retirement system that 773,000 current and retired workers are relying on.

To help bridge the roughly $1.8 billion gap between the pension payment proposed by Christie and what the Democrats have set as their funding goal, Senate President Stephen Sweeney (D-Gloucester) has introduced a bill that would increase the income-tax rate on earnings over $1 million.

Right now, the state’s top-end income-tax rate of 8.97 percent is levied on earnings over $500,000. Sweeney’s bill would establish a rate of 10.75 percent that would kick in for earnings over $1 million. The bill is projected to generate between $600 million and $700 million, though Christie is likely to veto it.

Though New Jersey Policy Perspective’s report said the switch to combined reporting could generate as much as $470 million, Lesniak said for budget purposes, given New Jersey has been burned in recent years by overly optimistic revenue projections, he is estimating $250 million in new revenue from his bill.

Though he acknowledged that won’t solve all of the state’s budget problems, Lesniak said “it certainly will help.”
“Certainly we anticipate revenues from closing this corporate-tax loophole,” he said. “The only question is, what’s the right number? It’s hard to pin down exactly.”

Though Christie has vowed to veto tax increases like the higher rate on earnings over $1 million, Lesniak said his bill is different.

Christie himself has proposed similar changes in tax policy under the umbrella of “tax fairness” that have resulted in companies having to shell out more to the state. For example, last year’s budget included proposals to extend New Jersey’s sales tax to online purchases and to levy the state tobacco tax on so-called e-cigarettes.

Christie has also raised a number of state fees and fines to bring in more revenue during his tenure, which began in early 2010.

“The governor should sign this bill,” Lesniak said.