The Goal Is Economic Growth, the Question Is How Best to Get There

For Gov. Murphy, investments and tax hikes would deliver the revenue to fuel expansion, but members of his own party are adamantly opposed to higher taxes

James Hughes, dean emeritus of Rutgers University’s Bloustein School of Public Policy
As lawmakers start to work on a new state budget in Trenton, they’re facing the challenge of having to predict how well the New Jersey economy will be performing, not just in a few months, but more than a year from now. While everyone wants to see more economic growth, figuring out the best way to reach that goal has become a top issue in this year’s budget debate.

Framing the discussion so far is Gov. Phil Murphy, a Democrat who is seeking to create a virtuous circle of growth and investment through a series of proposed tax hikes that would generate the revenue needed to pay for new spending in key areas that are believed to influence economic expansion, like public education and transportation.

But not everyone is fully embracing that view, including some leading members of the governor’s own party. Instead, they seem to be hoping there’s already enough momentum building in the state economy to generate the revenue needed to pay for new spending without having to make any major tax-policy changes. Meanwhile, representatives of the state’s business community are weighing in with their own economic suggestions. They maintain the proposed tax hikes, and a host of other economic policies like the establishment of a $15 minimum wage, could influence future business investment and the overall state economy.

Paying heed to long-term trends

The latest state jobs numbers are due to be released later this week, but economists generally recommend putting more stock in long-term trends instead of just one month’s worth of data. For New Jersey, the long-term economic trend has been one of steady but only slow growth since the end of the Great Recession.

In fact, New Jersey has been in the “middle of the pack” when it comes to private-sector job growth going back to 2010, said James Hughes, dean emeritus of Rutgers University’s Bloustein School of Public Policy, during a discussion of the state’s economic outlook that was held at the State House on Friday.

The state’s private-sector job-growth rate is just under 10 percent, besting some regional neighbors, like Connecticut’s 5.9 percent, and Pennsylvania’s 8.1 percent, he said. But New Jersey trails New York’s 14.5 percent growth rate, and Delaware’s 10.3 percent rate, as well as the national rate of 15 percent.

“It took us a while to finally shed our economic training wheels,” Hughes said, pointing to events like superstorm Sandy and the decline of Atlantic City’s casino industry as important factors that have influenced New Jersey’s post-recession economic growth.

Murphy seized on that trend of slow expansion on the way to winning last year’s gubernatorial contest against Republican Kim Guadagno, who was former Gov. Chris Christie’s longtime lieutenant governor. Christie favored tax cuts or at least holding the line on taxes, but Murphy’s first state budget seeks to generate economic growth by calling for higher spending in key areas like K-12 education, mass transit, and higher education.

The new spending in Murphy’s overall $37.4 billion budget plan would be supported by a series of tax hikes, including a higher income-tax rate on earnings over $1 million and the restoration of a 7 percent general sales tax. Murphy’s budget also proposes new corporate tax rules to raise additional revenue, and it would levy new taxes on “sharing-economy” services like Uber and Airbnb as well.

Invest, invest, invest …

To drive home Murphy’s budget vision, state Treasurer Eizabeth Maher Muoio used the words “invest” or “investment” a total of 16 times during an opening statement delivered to lawmakers at budget hearings last week in Trenton.

“This budget puts us on a path towards meeting our fiscal obligations, while at the same time making critical and long overdue investments that will help strengthen our state and provide for greater future economic growth,” Muoio said

But after listening to Muoio’s presentation, Senate Budget and Appropriations Committee Chair Paul Sarlo (D-Bergen) said he still wants to see how state tax collections fare in the remaining weeks of the current fiscal year, which closes at the end of June, before deciding whether to endorse any of Murphy’s tax proposals. Senate President Steve Sweeney (D-Gloucester) also repeated his position that tax hikes are a “last resort” this year.

“It can’t be just spend more. We’ve got to look at the other side of the ledger,” Sweeney said.

Another issue, raised by Sen. Steve Oroho (R-Sussex), is that Murphy may be setting unrealistic goals when it comes to long-term revenue growth, even with the proposed tax hikes. That’s because Murphy has called for increased spending that goes beyond just one fiscal year. For example, the governor has made multiyear commitments to increase spending on K-12 education, the public-employee pension system, and an initiative to provide free community college throughout the state.

“Promises are easy to make,” Oroho told Muoio. “Payments are difficult.”

Business community concerns

Meanwhile, representatives of the state’s business community have been raising concerns about the threat to the economy being posed not just by the tax hikes, but also by other policies that have been up for discussion this year. For example, the establishment of a $15 minimum wage remains a long-term goal for Murphy and majority Democrats, and last week, lawmakers also gave final approval to a measure that would establish a statewide earned sick-leave policy that employers would have to follow. A bill that would force energy ratepayers, including businesses, to cover what could be a $300 million subsidy for the state’s nuclear industry was also sent to the governor’s desk.

“Every one of these things has a cost factor to it, and no one is considering the cumulative impact,” said Michele Siekerka, president and chief executive of the New Jersey Business & Industry Association, during an interview Friday. “Nobody’s prioritizing how we’re going to approach all these different things.”

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