Updated: Gov. Phil Murphy and Democratic legislative leaders say they have an agreement to raise taxes on more of New Jersey’s wealthiest residents.
The deal announced Thursday in Trenton would raise an estimated $390 million in new revenue for a new state budget due to go into effect on Oct. 1, the leaders said.
Murphy, a first-term Democrat, convinced lawmakers in 2018 to establish a state surcharge on earnings over $5 million by establishing a new top-end marginal income-tax rate of 10.75%.
The new policy — which is still subject to the approval of the full Legislature — would extend that rate to earnings over $1 million, according to the announcement made by Murphy, Senate President Steve Sweeney (D-Gloucester) and Assembly Speaker Craig Coughlin (D-Middlesex).
More information about the proposal was not immediately available, but if it passes the Legislature it would signify a policy victory for the governor, who has been trying to convince lawmakers for years to establish a true “millionaires tax” in New Jersey as a matter of “tax fairness.”
Currently, earnings over $500,000 and up to $5 million are taxed by the state at a rate of 8.97%. The higher rate that will levied on earnings over $1 million and up to $5 million would be retroactive to Jan. 1, 2020, according to the Department of Treasury.
In addition to hiking the income tax for millionaires, Murphy and the legislative leaders are also promising to establish a new “rebate” program that would provide state-funded checks to many New Jersey families with children, but not until 2021.
Rebate program: Details to come
While full details of this additional proposal were not made public on Thursday, the leaders indicated the checks would go out to taxpayers next summer, on the eve of Murphy’s reelection bid; the full Legislature will also be up for reelection then. Treasury officials indicated the rebates would likely be funded in fiscal year 2022, which begins next year on July 1, and not the budget year that begins this Oct. 1. But that is also subject to change, they said.
Under the state Constitution, New Jersey’s income-tax revenue is dedicated to funding property-tax relief programs, which can also include state aid to schools and municipalities. It was not immediately clear how the new tax-relief initiative being billed as a rebate program by the governor and the legislative leaders would be funded, but Treasury officials indicated it would likely be a rebate tied to qualified taxpayers’ income-tax liability.
Murphy and the legislative leaders said they’re aiming for the rebate to be worth as much as $500 for families with income of up to $150,000 who have children and to single parents with income up to $75,000. Left out of the rebate program apparently would be individuals and couples with no children, as well as seniors without qualifying dependent children.
Although they said the rebates would not be provided to residents until next year, the governor and legislative leaders portrayed the promised tax relief as being meaningful for residents who may be struggling because of the coronavirus pandemic, such as with job losses or evictions.
It’s not yet clear how much it will cost the state to send checks to the thousands of residents who may qualify for the promised relief, whether those checks would be provided on a regular basis or just next year. Murphy said only that he hoped the new program could become more than a one-year offering.
The three leaders estimated the state-funded rebates could cost between $350 million and $400 million as a budget item, meaning they would effectively cost about the same as what the state would gain on the revenue side of the ledger by hiking the income-tax rate on earnings over $1 million and up to $5 million.
Lower estimate for revenue from millionaires tax
Murphy’s previous millionaires tax proposals had assumed nearly $500 million in new revenue would be collected by expanding the state’s wealth surcharge, but Department of Treasury officials told lawmakers in recent budget committee hearings that the estimate was lowered in recent weeks due to the recession.
During Thursday’s announcement, Murphy called the proposed rebate program a “big deal for the middle class in this state.”
“As we look to the other side of this pandemic, we will need to fuel an economic recovery,” Murphy said. “This is money our families need and money that will help spur our recovery and our future resiliency.”
Sweeney and Coughlin previously had blocked Murphy’s attempts to expand the wealth surcharge, but that was before the state became mired in a recession triggered by the pandemic. And Sweeney previously suggested he would first want Murphy to agree to changes that would make public-worker benefits less costly before agreeing to expand the wealth surcharge.
“Well, I bet a lot of you didn’t expect to find me here today,” Sweeney said during Thursday’s announcement.
“We have to talk about the other side of the envelope,” Sweeney went on to say. “And we are going to focus on making changes to make New Jersey more affordable.”
For his part, Coughlin pointed to the looming end-of- month deadline for a new state budget to be in place.
Signals that broad budget agreement is close
“We still have work to do,” Coughlin said. “I look forward to continuing the progress that we’ve made working collaboratively with the governor and the Senate president and our respective teams to finalize a budget, which I expect we will do in relatively short order.”
All three leaders also indicated a broader agreement on a new budget is close to being finalized. But they did not provide any additional details on the status of other tax-policy changes the governor has proposed in recent weeks, including higher rates on boat and cigarette sales and the profits of top-earning businesses.
The proposed tax-policy changes announced on Thursday drew immediate criticism from Republicans. Many noted the new tax rebate program would be created at the same time the state is planning to borrow up to $4 billion to help support deficit spending in the new budget year, and as items like K-12 school aid and public-worker pensions remain underfunded.
They also suggested the higher taxes to be levied on millionaires would likely drive some to flee New Jersey for places with lower rates.
“Governor Murphy’s plan to raise taxes is a gift for the Florida economy and a nightmare for New Jersey,” said Assemblyman Jon Bramnick (R-Union). “Passing another ill-conceived tax will make outmigration worse and shift the tax burden onto the middle-class when others leave.”
Business groups also criticized the proposed policy changes, suggesting they would only add to the state’s reputation for high taxes.
“What about New Jersey’s business owners and entrepreneurs who are struggling? Sooner or later this administration needs to realize that the business community is not a bottomless ATM machine,” said Tom Bracken, president and chief executive of the New Jersey Chamber of Commerce.
— Colleen O’Dea contributed to this story.