News of an “April surprise” in New Jersey’s income tax collections is around the corner. If Connecticut’s latest tax figures are any indication, New Jersey could collect much more revenue than was previously projected. A boost in revenue would be a welcome windfall for the state, but it should not dissuade legislators from pursuing the structural tax reform necessary for New Jersey to meet its existing obligations and reinvest in its future.
According to the latest consensus revenue forecast, Connecticut’s income tax collections are up by $240 million for fiscal year 2018. That is a 200 percent higher windfall than the low-end estimate of $80 million. The increase is most likely due to the change under the 2017 federal tax law that triggered a one-time repatriation of hedge-fund profits from friendly foreign magnets like Ireland and the Cayman Islands and state taxation on those fees. Taxpayer behavior, including prepayment of income taxes, may have also played a role.
Though New Jersey is not likely to get as big of an increase as Connecticut, the so-called hedge fund capital of the world, legislators still hope to see a bump in the state’s largest single source of revenue — for all the wrong reasons. Relying on an April surprise allows lawmakers to ignore the state’s structural-deficit crisis for another year. An extra boost in income tax collections has no business being used as political cover for hard decisions: It’s simply an unexpected one-time bonus and should be treated as such.
There’s a variety of important and prudent uses that this boost could go toward: It could shore up our woefully inadequate rainy day fund to protect New Jersey from a future economic downturn. Or support funding for shortfalls that remain in Gov. Phil Murphy’s 2019 budget, such as affordable housing, lead testing in schools, and clean-energy job creation. What it shouldn’t be treated as is an alternative source of new, stable revenue.
It’s no secret that New Jersey is failing to keep up with vital investments like education and a reliable transit system due to trickle-down economic policies. Repeated tax cuts over the past eight years have largely benefited the wealthy and corporations, leaving the middle-class and hard-working families behind. In fact, deep tax cuts are precisely why legislators created an unhealthy dependency on April tax collections to begin with.
As Treasurer Elizabeth Muoio said in her testimony before the Senate Budget and Appropriations Committee, “It’s time to face the facts.”
A strong commitment to fixing our broken tax code is an essential part of moving the Garden State onto a path of recovery and prosperity. Key to this vision are Gov. Murphy’s revenue proposals — many of which are based on recommendations that New Jersey Policy Perspective has consistently championed — including a millionaires tax, reversing last year’s gimmicky sales tax cut, and closing corporate-tax loopholes. Legislators should not use a one-time April surprise as an excuse to punt on bold action: That would be a mistake New Jersey simply cannot afford.