Opinion: Does GOP Tax Reform Spell Trouble for Murphy’s Millionaires Tax?

Carl Golden | December 18, 2017 | Opinion
Is true-believer Steve Sweeney starting to waffle? Will new administration stumble over key promise, or hit the ground running?

Carl Golden
As a candidate, governor-elect Phil Murphy’s signature campaign promise — increasing the income tax on wealthy New Jerseyans to raise $600 million and dedicate it to aid public education — drew the enthusiastic, definite, absolute, unqualified support of Senate President Steve Sweeney (D-Gloucester) who pledged to make the increase the first order of legislative business in 2018.

With little more than a month before Murphy assumes office, Sweeney has given his enthusiastic, definite, absolute, unqualified support … well, maybe.

Insisting that he has not wavered in his support for the so-called millionaire’s tax, Sweeney has said the idea may need to be reconsidered in light of the tax-reform legislation currently making its way through Congress.

Sweeney said he’s concerned that if federal tax deductions for state and local taxes are eliminated or capped, the impact on high-income earners in New Jersey would be devastating and could make it politically risky for the state to increase its rates as well.

While not commenting specifically, Sweeney’s concern seems to be that those with incomes of $1 million and above would decide to flee the state, taking their business interests, incomes, and tax payments to more tax-friendly climates.

Christie’s argument

It is much the same argument made by Gov. Chris Christie in his five separate vetoes of the millionaire’s tax, an argument that at the time was ridiculed by Democrats who contended there existed no empirical evidence to support the governor’s contention.

Should the tax-reform legislation win Congressional approval, Sweeney said he’ll appoint a task force to determine and assess the impact on New Jersey and decide whether the Legislature should pursue enactment of the millionaire’s tax.

While there doesn’t appear to be a significant break between Sweeney and Murphy over the issue, the Senator’s call for a prudent slowdown in the drive for the tax increase poses a dilemma for the incoming governor.

Murphy was clear during his campaign that the road to long-sought-after property tax relief ran through Trenton and the directional sign read “Millionaire’s Tax.”

The road may have suffered a washout in the cold-water flood of political reality.

Murphy certainly understands the stakes involved if, for some reason, he’s unable to deliver on what arguably was the promise that contributed most significantly to his victory.

He’ll come into office facing enormous fiscal challenges from funding education to pulling the financially troubled public pension system back from the brink of insolvency.

Moreover, the ambitious agenda he laid out during his campaign, while lacking in detail, would require additional spending on an unprecedented scale to implement fully.

A clumsy effort

His weekend letter to Christie requesting a halt to further discretionary spending to avoid a serious budget shortfall at the end of the fiscal year in July was an effort — a fairly clumsy one — to lay a foundation for blaming Christie for a potentially precarious budget situation that could derail the Murphy agenda.

A new administration claiming it inherited major budgetary issues from the outgoing one is standard fare and for Murphy to embrace it should come as no surprise.

The tax increase on the wealthy was to be supplemented by what Murphy predicted would be $300 million in additional revenue from the sale of legalized marijuana. Legalization is by no means assured in the Legislature and, even if it did occur, projections are that it would be two years at a minimum and more likely three before a system could be implemented and regulations developed to govern the sale and begin to realize the tax revenues.

Enacting the millionaire’s tax within weeks of taking office would get his administration off to a glittering start, establishing Murphy as a man equal to the task of grappling with the state’s most pressing problems and achieving solutions.

Panic hasn’t set in yet, but there is a sense of unease that hitting the ground running is in jeopardy; that hitting the ground stumbling is a very real prospect.

The study proposed by Sweeney will buy some time certainly, but taxpayer patience is in short supply and any argument that it’s all the president’s fault won’t mollify homeowners who believe relief from five-digit and rising property taxes is long overdue.

Murphy has recognized the potential exists for derailing his tax increase promise and, like all politicians in similar situations, has moved to position himself ahead of it.

He’s spoken out forcefully against the federal legislation, for instance, and joined with New York Gov. Andrew Cuomo and New York City Mayor Bill DeBlasio pledging to bring legal action to block the elimination or restriction of the state and local tax deductions.

A photo op

The Murphy-Cuomo-DeBlasio threat was little more than a photo op to beat up on Trump and signal they stood united in protecting their taxpaying constituents.

It was a textbook example of the advice offered to candidates who wish to be successful: “Find a parade and get in front of it.”

As a practical matter, the possibility of a successful court challenge is nonexistent. Even if one was mounted, it would likely take years and millions of taxpayer dollars to carry it out.

Obviously, the possibility of losing the state- and local-tax deductions was unforeseen during New Jersey’s gubernatorial campaign, but the harsh reality is that it is now upon us.

Murphy’s dilemma could be resolved quickly and he could re-boot his millionaire’s tax if the Congress eventually accepts retaining the deductions.

Such a hope is a thin reed for Murphy to cling to, but there isn’t anywhere else for him to turn at the moment.

He will have Sweeney’s help and support for certain, but pulling the Democratic majorities in the Legislature along with him and accepting a tax increase atop a Federal hit is problematic.

“Campaigning is easy; governing is hard,” it’s been said.