NJ governor’s race: Murphy’s moves on taxes, budgets

Rates went up for high earners. But many saw their tax burden lifted
Credit: (Edwin J. Torres/NJ Governor's Office; CC BY-NC 2.0)
File photo: Gov. Phil Murphy

The size of New Jersey’s annual budget has grown by more than 30% since Gov. Phil Murphy took office in early 2018, easily outpacing the rate of inflation.

To help support the big spending increase, Murphy has worked with state lawmakers to raise several taxes, including those levied on wealthy individuals and top-earning businesses.

But the state has also seen tax receipts grow in areas where rates have remained unchanged during Murphy’s tenure. And much of the big increase in spending is helping fund increases in aid to K-12 schools and record-high public-worker pension contributions after years of governors and lawmakers having shorted those payments.

NJ Spotlight News is taking a closer look at some of the ways Murphy, a first-term Democrat seeking reelection, has sought to address New Jersey’s many challenges. Today’s installment examines his work on the state budget, taxes and related issues. Other issues include public education, social justice, the environment as well as health care and COVID-19.

Taxes: Murphy has had an eventful four years in office when it comes to state taxes, and for some, his efforts have resulted in lower net taxes. These include thousands of low-wage workers who qualify for the state’s expanded Earned Income Tax Credit. Recent changes to the Homestead property tax-relief benefit, which is provided annually to thousands of seniors, people with disabilities and low- and moderate-income homeowners, have also made those benefits more generous. The state’s income-tax deduction for local property-tax bills has also been expanded during Murphy’s tenure. And earlier this year, among other election-year tax breaks, the state budget funded a new parental income-tax rebate of up to $500.

But it’s a totally different story for the state’s top-earners, who are still being relied upon to fund a disproportionate share of the income tax, the single largest source of revenue for the annual budget. Murphy hiked New Jersey’s top-end income-tax rate in two steps, moving the rate from 8.97% to 10.75% for all earnings over $1 million. A surcharge on the taxes paid by top-earning businesses in the state was also established — and then made permanent — during Murphy’s tenure. And despite his efforts to better fund K-12 schools and promote shared services at the local level, average property-tax bills continue to rise in New Jersey, hitting a record high $9,112 in 2020.

Credit rating: Having a poor credit rating can be bad for a state’s overall reputation, but it can also lead to increased borrowing costs that are ultimately passed along to taxpayers. By the time Murphy took office in early 2018, New Jersey had seen a series of credit-rating downgrades from several major Wall Street rating agencies during the state’s slow recovery from the 2007-2009 Great Recession. The downgrades collectively left New Jersey with one of the lowest debt grades among all U.S. states.

Last year, the state’s credit rating took a few more hits during the downturn triggered by the coronavirus pandemic, with two of the credit-rating agencies deciding to lower the state’s debt grade by one notch each. And despite some outlook revisions signaling more recent progress on fiscal issues during Murphy’s tenure, New Jersey’s credit rating itself was not increased, and it remains lower in the eyes of two major rating agencies today than before Murphy took office.

Structural budget gaps: The credit-rating agencies have long raised concerns about New Jersey’s penchant for using one-time sources of funding to cover annual obligations, a practice that creates an immediate structural budget gap heading into the next fiscal year. During his first few years in office, Murphy started to make some progress in this area as several taxes were increased to help bring annual revenues more in line with annual spending.

However, Murphy’s budget for the current fiscal year calls for spending down a portion of the state’s budget reserves to cover a big year-over-year increase in annual appropriations, instead of using only recurring sources of revenue to sustain that spending. Recent commitments to increase allocations for things like K-12 schools and public-worker pensions have also rekindled concerns about the state’s ability to close its structural budget gaps in the future. Even while revising New Jersey’s credit outlook to “positive” in August, analysts at S&P Global Ratings warned of a “large structural operating deficit,” which they determined was equal to nearly 10% of total appropriations in the 2022 fiscal year.

Budget transparency: Throughout his term, Murphy has carried on a series of budgeting practices that have won decent grades from groups like the nonpartisan Volcker Alliance, which regularly rank states on their openness and transparency. Those practices include the routine posting of important state budget documents online and the drafting and publishing of an annual tax-expenditure report.

However, during Murphy’s tenure, concerns about the budget approval process have been aired by many Republicans and progressive policy advocates. They fear the public’s role in the process is being methodically diminished, including earlier this year, when lawmakers drafted and sent to Murphy a final appropriations bill — with hundreds of millions in added spending — all within a matter of days. Murphy and his staff participated in last-minute budget negotiations with legislative leaders, behind closed doors, and he ultimately signed the hastily advanced spending bill unchanged.

Find complete NJ Spotlight News election coverage here.

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