State income tax revenues jumped from $7.2 billion in FY2000 to $12.6 billion in FY2008 before diving to less than $10.5 billion in FY2009, despite a surcharge approved by Governor Corzine and his Democratic-controlled legislature raising the top rate to 8.97 percent on income above $400,000, 10.25 percent above $500,000 and 10.75 percent above $1 million in 2009 and 2010. Democratic legislative leaders, unions and liberal groups argued that Christie should extend the so-called “millionaire’s tax” for one more year instead of cutting property tax rebates and school aid so deeply, but Christie vetoed the tax extension as soon as it reached his desk. Even after the repeal of the millionaire’s tax, New Jersey has one of the most graduated income taxes in the country, with individual income tax rates ranging from 1.4 percent on income up to $20,000; $1.75 percent on income from $20,001 to $35,000; 3.5 percent on $35,001 to $40,000; 5.25 percent on $40,001 to $75,000; 6.37 percent on $75,001 to $500,000; and 8.97 percent on $500,001 and above. For families, the tax brackets double; the 6.37 percent bracket, for example, kicks in on family income of $150,001 and above. As a result of these highly graduated tax brackets, New Jersey’s wealthiest 1 percent pay almost half the income tax. As a consequence, New Jersey’s income tax collections fluctuate more wildly than most states depending on the vagaries of Wall Street and corporate bonuses. As one former state Treasury official quipped, “when Wall Street sneezes, the New Jersey state budget gets the flu.”
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