Following through on his major campaign promises of last year, Gov. Phil Murphy’s first state budget ramps up spending on public education, mass transit, property-tax relief, and public-worker pensions, among other key areas. It also proposes $1.7 billion in tax increases, much of those also talked about in the campaign, bringing New Jersey’s budget to a record $37.4 billion.
The tax increases include a higher income-tax rate for millionaires that was widely expected to be part of his budget proposal. But Murphy also announced a hike in the general sales tax that his Republican opponent had warned was looming, restoring the rate back to what it was a few years ago, before former Gov. Chris Christie negotiated it down to 6.625 percent. Also due to be taxed are legalized marijuana sales and so-called sharing-economy services like Uber car rides. In addition, Murphy is seeking changes to the corporate tax code that were detailed for the first time yesterday.
“Everything in this budget is built around restoring New Jersey as the ‘good value for money’ state we had been for decades,” Murphy said during a nearly hourlong budget message held inside the State House.
The fate of his budget plan now depends on just how much of the new spending — and Murphy’s slew of proposed tax hikes — state lawmakers from his own party will be willing to embrace as the annual budget process plays out over the next several months.
Yesterday Democratic legislative leaders offered only tepid encouragement, signaling there could be at least some trouble ahead for Murphy, who never held public office before being sworn in as governor. And Republicans found little to praise outside of a proposed $5,000 increase of the state income-tax deduction that’s currently allowed for property taxes.
Business groups also criticized Murphy’s tax proposals, suggesting they could drive more people and companies to leave the state at a time when the governor has talked about growing the economy. But Murphy was widely praised by public-worker representatives and progressive groups for reversing the policies of Christie.
Compared with Christie’s final state budget, spending would be increased by nearly 8 percent under Murphy’s proposed spending plan for the 2019 fiscal year, which begins on July 1. A major chunk of the spending increase is set aside for the public-employee pension system, which would get a record, $3.2 billion infusion of cash, up from the $2.5 billion set aside in Christie’s final budget.
Direct state funding for K-12 education that’s known as “formula aid” would be increased by $284 million, and Murphy is also proposing a boost in state funding for grants to college students, including $50 million for those enrolled in community colleges.
New Jersey Transit, the state’s beleaguered rail and bus agency, is also in line to receive a sizable increase in funding to support its operating budget after getting only flat funding in Christie’s final years in office. Murphy is boosting state support by roughly $167 million, a total that counts money coming directly out of the state budget, but also from continued diversions of funds from the New Jersey Turnpike Authority and the state’s Clean Energy Fund that began under Christie.
“Like so many of our challenges, fixing New Jersey Transit will not happen overnight, but we are sending a strong signal to our commuters that a better day, and better service, is coming,” Murphy said.
Helping to cover the freight of the proposed spending increases is Murphy’s proposal to create a 10.75 percent state income tax rate for earnings over $1 million, and to also make the higher rate retroactive to January 1. Right now, the state’s top-end income-tax rate is 8.97 percent, and it’s applied on earnings over $500,000.
Murphy is projecting the higher rate will generate $765 million in new revenue, though some of that increase would be immediately reduced by a proposal to increase the size of the state’s Earned Income Tax Credit for low-wage workers. Right now, that credit is equal to 35 percent of the federal government’s, but Murphy wants to increase it to 37 percent during the 2019 fiscal year.
“It will provide even more relief for the New Jersey families who rely upon it for tax fairness,” Murphy said.
Murphy is also proposing to increase the state income-tax deduction for local property taxes to $15,000, which will also cut into the beefed-up income-tax revenue stream. Currently, it is capped at $10,000. The idea is to help offset to some degree a new cap of $10,000 at the federal level for the deduction of state and local taxes, said Murphy, a popular write off known as SALT. But he is not increasing the direct state property-tax relief that is currently provided through the state’s Homestead and Senior Freeze programs.
While Murphy proposed the millionaires tax as a candidate for governor last year, saying it was a big part of his plan to restore overall equity to the state fiscal policies that were enacted by Christie, several of the other tax increases that are in his budget proposal go beyond those he included in his 2017 campaign platform, like the higher sales tax. In fact, after ads that were aired last year by the campaign of Republican Kim Guadagno said additional tax hikes were inevitable, Murphy’s campaign responded by accusing her of resorting to “half-truths and outright lies.”
But under his new budget plan, Murphy is calling for the state to return to the 7 percent sales tax that was in place for much of the past decade, before Christie convinced lawmakers in 2016 to lower it to 6.625 percent as part of a broader tax-policy revision that included hiking the state gas tax.
Taxing the sharing economy
Murphy’s budget also calls for new taxes to be levied on sharing-economy services, such as Uber and Lyft, and Airbnb short-term housing rentals. Some corporations would also face higher taxes, including large multistate companies that are suspected of reporting some profits in states with lower corporate tax rates. New revenue would also be raised from wealthy hedge-fund managers, assuming leaders in nearby states adopt a similar policy, and by legalizing and taxing recreational marijuana, and expanding the state’s medicinal-marijuana program.
But Murphy did not include any elements of a corporate tax-hike proposal put forward recently by Senate President Steve Sweeney (D-Gloucester) that called for a higher tax rate for companies earning over $1 million. It’s no secret that Sweeney and Murphy have not being seeing eye to eye on several big policy issues since Murphy took office in January, including the proposal to increase the millionaires tax. Yesterday the Senate leader left the Assembly chambers where the budget message was delivered without offering any comments to reporters who were seeking a direct response.
“Sorry guys, we put out a statement,” he told reporters before ducking out a back door.
The statement issued by Sweeney and other top Democrats in the Senate promised there will be “a thorough and deliberative review of the Governor’s proposal,” but it stopped short of embracing any of Murphy’s specific policy goals.
“We will maintain an open mind throughout the budget process,” the statement said.
Meanwhile, Assembly Speaker Craig Coughlin (D-Middlesex) offered a similar, measured response to reporters who caught up with him moments after Murphy’s speech ended.
“We’re going to go through a thorough and thoughtful process, and we’re going to come up with something that works best for the people of New Jersey,” Coughlin said.
GOP leaders: Just say ‘no’
While Murphy won’t need to get any votes from Republicans to pass his major policy initiatives if he can win over majority Democrats, GOP leaders made it clear yesterday that they will oppose his spending and tax plans.
“There’s no such thing as a free lunch,” said Sen. Tony Bucco (R-Morris). “Someone has to pay for it.”
New Jersey Business & Industry Association leader Michele Siekerka also took issue with Murphy’s millionaires tax proposal, saying the higher rate would hit many small-business owners who pay taxes through New Jersey’s personal income-tax code.
“We have long opposed the millionaires tax because it is an added tax against people who provide jobs and will exacerbate our standing as the No. 1 outmigration state in the nation,” she said.
But Murphy got a big dose of praise from labor leaders, including Marie Blistan, the president of the New Jersey Education Association. She lauded the governor for coming through on his major campaign promises.
“That’s the vision that New Jersey voters supported in November, and it’s the budget he delivered today,” she said.
Analilia Mejia, executive director of the New Jersey Working Families Alliance, said Murphy’s budget would restore overall tax fairness following the Republican Christie’s tenure.
“New Jersey working families are poised to finally take a step forward on education, property tax relief, environmental justice, and a whole host of issues because of Governor Murphy’s bold and responsible budget,” she said.