Gov. Phil Murphy is holding firm to his call for a true millionaire’s tax even as an improving revenue outlook is taking pressure off New Jersey’s perennially strained budget — and giving many lawmakers a reason to believe a wealth surcharge is no longer necessary.
State Treasurer Elizabeth Maher Muoio detailed the latest news on state revenues for lawmakers yesterday, including a tax-collection forecast for the final weeks of the current fiscal year that’s now upgraded by $377 million over revisions made just a few weeks ago.
Budget reserves are also being padded as a result of the state’s improving finances, and $240 million has been added to the revenue forecast for the fiscal year that begins July 1, she said. There may even be grounds for canceling a gas-tax increase that many feared was looming later this year.
“It’s always satisfying to come here bearing good news about revenue projections rather than bad news,” Muoio told members of the Senate Budget and Appropriations Committee during a lengthy hearing in Trenton.
Right thing to do, ‘morally and fiscally’
But Muoio tempered her message with a number of warnings as she pivoted to making the case for Murphy’s call to establish a higher income-tax rate on earnings between $1 million and $5 million. Costs continue to rise while some sources of this year’s tax-collection surge aren’t likely to repeat in the coming fiscal year, she said, making the millionaire’s tax a necessity to maintain long-term stability.
“Asking millionaires to pay a few more cents on the dollar is the right thing to do, both morally and fiscally,” she said.
As the hearing came to an end, though, lawmakers remained largely unconvinced, suggesting the debate over the millionaire’s tax will go down to the wire as negotiations begin in earnest to nail down a state budget by the June 30 deadline. In fact, committee Chair Paul Sarlo (D-Bergen) said the positive revenue news means “the pressure to do a millionaire’s tax is gone.”
“The pressure is now off,” he said.
Murphy, a first-term Democrat, began calling for the higher rate on earnings over $1 million as a candidate in 2017 as he laid out an ambitious spending agenda that included fully funding the state’s K-12 school-aid formula and its troubled public-worker pension system.
Last year, lawmakers only agreed to increase the top-end tax rate on earnings over $5 million. They also created a surcharge on corporations making more than $1 million.
Lots of black numbers
The increased corporate tax and taxfilers’ reactions to changes implemented in 2017 at the federal level helped to swell the state’s fiscal year 2019 tax collections. The corporate-business tax is now on course to beat original FY2019 projections by more than $750 million. Meanwhile, income-tax collections that appeared at one point to be way off pace are now trending to come in just slightly below the original projection made last July.
The income-tax comeback was fueled in part by a record-setting April as more than $3.6 billion in income-tax collections came in during the tax-deadline month, besting the state’s prior record from 2008 of $3.14 billion. Muoio said the last-minute influx seemed to be caused by federal tax changes, including the capping of the deduction for state and local taxes (SALT), which took away an incentive for many to file their state taxes early.
Treasury also boosted its projection for revenues that will be collected from those making over $5 million, seemingly easing concerns that the higher tax rate would combine with the loss of a full SALT deduction to cause an exodus of high earners. Similar concerns have remained a key sticking point for legislative leaders this year as both Senate President Steve Sweeney (D-Gloucester) and Assembly Speaker Craig Coughlin (D-Middlesex) have remained opposed to Murphy’s plan to expand the pool of those paying the state’s top, 10.75-percent rate to incomes over $1 million.
But looking ahead, Muoio said about $1 billion in FY2019 revenues came from one-time measures like the tax-amnesty program and revenues that were still coming in from the phased-out estate tax. Without the tax hikes called for in Murphy’s FY2020 budget, including the millionaire’s tax, revenue growth would only equal $311.5 million. That wouldn’t be enough to cover proposed spending increases the governor has budgeted for public-worker pensions, K-12 education and New Jersey Transit.
Debate over ‘rainy day’ fund
Meanwhile, Murphy is also planning to pad the state’s budget surplus, making a $317 million deposit into the “rainy day” fund, which hasn’t been replenished since it went dry during the Great Recession. And to sweeten the deal on the millionaire’s tax, Murphy has proposed spending an additional $250 million in the coming year on direct property-tax relief.
“The governor believes strongly that we should boost direct property-tax relief to the people of this state while we have a little bit of breathing room in this budget,” Muoio said.
If lawmakers were to go along with that plan, overall spending would rise to $38.9 billion, which would set a record for the state budget.
But Muoio faced pushback from several lawmakers during yesterday’s hearing. Sen. Declan O’Scanlon (R-Monmouth) asked why the Murphy administration feels it’s in a position to pad budget reserves at a time when the state is still playing catchup in a number of areas. For example, the planned pension contribution in FY2020 will only equal 70 percent of what actuaries say is required.
“Your average family ends up with a surplus at the end of the year, do they put it into savings or do they pay their bills that they have not yet paid?” asked O’Scanlon. “If they have a deficit in the bills they’re paying, I would argue it’s irresponsible to take any money and put it into savings.”
Sarlo also said earlier in the day that lawmakers may ultimately fashion budget language to prevent the Murphy administration from socking away money in reserves at the same time it’s seeking to raise more cash from high earners.
“That’s an option that we have available to us,” Sarlo said.
After the hearing ended, he also said the debate over establishing a millionaire’s tax has now come down to “a policy decision” instead of something that may be absolutely necessary to balance spending, which has traditionally been a big task for lawmakers during the state’s slow recovery from the Great Recession.
“The pressure of balancing a budget, that pressure is off,” he said.