No Matter How NJ Budget Negotiations Go, Notable Tax Breaks in Cards

John Reitmeyer | June 24, 2019 | Budget
Programs for senior citizens, the disabled and veterans set to benefit as interests of governor and lawmakers line up on certain issues

Credit: Edwin J. Torres/Governor's Office
Gov. Phil Murphy and State Treasurer Elizabeth Maher Muoio at a press conference on the budget on Friday, June 21
New Jersey residents are set to come away with some notable new tax relief, no matter how the ongoing fiscal tug of war involving Gov. Phil Murphy and lawmakers is resolved this week.

Lawmakers packed nearly $170 million in new tax breaks into the fiscal year 2020 budget bill they sent to Murphy late last week, even as they rejected several tax hikes that were in the governor’s original budget request, including his coveted millionaires tax.

Programs that provide tax breaks to senior citizens, the disabled and veterans are among those that would see more funding under the Legislature’s spending bill.

And then there’s Murphy’s own budget proposal, which calls for about $250 million in new tax relief for residents. Those tax breaks would come in the form of an income-tax credit for an estimated 2 million homeowners and renters who are struggling to pay New Jersey’s highest-in-the-nation property-tax bills. But the credit would only be established if lawmakers have a change of heart on the millionaires tax.

This week is a crucial one for reconciling differences through budget negotiations as a new spending plan must be enacted before July 1 to avoid a government shutdown. While Murphy, a Democrat, has thus far held firm to his demand for a millionaires tax, the governor does not have the power to raise taxes unilaterally, giving lawmakers the upper hand.

Fall elections are a factor

No matter how things play out before the deadline, some form of new tax relief is likely to make it into the next budget, as that’s one area where the interests of the governor and lawmakers are lining up nicely. All 80 seats in the Assembly are at the top of the ticket across the state in November, and new tax-relief proposals are typically enacted before such elections to help incumbents when they get out on the stump. Not losing any of the Democrats’ wide majority in the Assembly is a main goal of legislative leaders, but it’s also important for Murphy. If his party lost any ground during his first mid-term election, it would likely be viewed as a rejection of his leadership.

Murphy officially rolled out his property-tax relief initiative earlier this month during an event in Hackensack, saying he would be able to provide about 2 million New Jersey homeowners and renters with a refundable income-tax credit worth $125 if lawmakers signed off on his call to apply the state’s top income-tax rate of 10.75 percent on all earnings over $1 million. Right now, that rate is levied only on earnings over $5 million, while earnings between $1 million and $5 million are taxed at 8.97 percent.

But lawmakers, with the November election in mind, had already firmly staked out their opposition to any tax hikes by the time Murphy offered up his new tax credit. The governor’s last-ditch push to win support also failed to move the needle among rank-and-file lawmakers leading up to last week’s budget votes.

Instead, the Legislature’s budget bill makes a number of investments in tax-relief programs, including those that directly help property owners. For example, there is $18 million in new funding for the property-tax relief program, known as Senior Freeze. Language that would allow for a lifting of the program’s cap on annual income, which has been in place for over a decade, was also added to the budget bill.

Removing the cap would mark a major victory for senior citizens and disabled homeowners, as more than 150,000 already take advantage of the program, which provides checks for recipients to effectively “freeze” their property-tax bills. Without the cap, which has maintained eligibility at $70,000, homeowners making nearly $90,000 annually would be able to qualify for the property-tax reimbursements.

Possible beneficiaries

Also under the legislative budget, the state income-tax deduction for veterans would double from $3,000 to $6,000. Created in 2016 as part of a broader deal that included an increasing of the state gas tax, the veterans tax deduction benefits nearly 400,000 residents who were “honorably discharged or released under honorable circumstances” from active duty in the Armed Forces of the United States, a reserve unit, or the National Guard of New Jersey in a federal active-duty status. Doubling the credit in FY2020 would cost an estimated $23 million, according to estimates from the nonpartisan Office of Legislative Services.

Other new funding for indirect tax-relief initiatives in the legislative budget include $50 million for K-12 school districts for extraordinary special education aid, and $20 million for emergency aid for districts facing fiscal distress. This includes districts that are now losing state aid thanks to recently enacted education-funding formula changes.

There’s also another $50 million in new funding for grants to local governments to help them study shared-services opportunities that could ultimately ease the burden on property owners in municipalities and school districts. Lawmakers are scoring several smaller allocations as “property-tax relief” in their budget bill, such as grants for urban parks and $4 million in new funding for the state’s inter-district school-choice program.

Murphy himself has stressed things like shared services and property-tax relief for seniors, suggesting those tax-relief proposals will make it into the final budget no matter how negotiations go this week. But he’s also still holding out hope that lawmakers will reverse course on the millionaires tax, and during a news conference on Friday, Murphy said “the offer still stands” to work with lawmakers to establish the new property-tax relief credit.